Refer to the graph above, where Sd and Dd are the domestic supply and demand cur

Question

Refer to the graph above, where Sd and Dd are the domestic supply and demand curves for a product. The world price of the product is $6. If the economy is open to international trade but a per unit tariff of $4 is imposed, then the total revenue going to domestic producers would be:

A. $400, the total revenue (after tariff) going to foreign producers would be $120, and the tariff revenue going to the government would be $80
B. $240, the total revenue (after tariff) going to foreign producers would be $240, and the tariff revenue going to the government would be $80
C. $400, the total revenue (after tariff) going to foreign producers would be $240, and the tariff revenue going to the government would be $80
D. $240, the total revenue (after tariff) going to foreign producers would be $120, and the tariff revenue going to the government would be $120

The correct answer is A. Give a detailed explanation why.

Explanation / Answer

A. $400, the total revenue (after tariff) going to foreign producers would be $120, and the tariff revenue going to the government would be $80.

After tariff price = 10 and quantity supplied = 40. Therefore, total revenue = p*q = 10*40 = 400

Tariff = p*q = 4* (40-20) = 80

Foreign producers = 6*20 = 120

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