Assume that Mexico is a small country , which imports pocket calculators at the

Question

Assume that Mexico is a small country, which imports pocket calculators at the free trade world price of Pw = $10. At this price the quantities supplied and the demanded are 10 and 110 respectively. Mexico now imposes a tariff of $4 per unit on imports of pocket calculators. After the tariff is imposed the quantities supplied and demanded change to 20 and 70 respectively.

The tariff revenue the Mexican government collects is $_______________   (calculate the value and fill in the number in the box)

Explanation / Answer

Tariff Revenue = Tariff x (Quantity demanded at $ 4 - Quantity supplied at $ 4)

Tariff Revenue = 4 (70 - 20) = 4 x 50 = $ 200

So, government collects revenue of $ 200.

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