3. (20 points) Refer to the following graph for the Home country before and afte

Question

3. (20 points) Refer to the following graph for the Home country before and after a tariff. The home producer of the good is a monopolist prior to trade Price $1100 MC $320 $250 $70 75 110 150 185 Quantity and Under free trade (prior to the tariff), the home country produces imports a. b. The consumer surplus prior to the tariff is: c. According to the graph, the home country imposed a tariff of dollars per unit, and the new quantity of imports is After the tariff, what is the decrease in consumer surplus? After the imposition of the tariff, the home monopolist saw an increase in production of and the producer surplus increased by The home government collects The deadweight loss due to the tariff is: d. e. f. g. in tariff revenue.

Explanation / Answer

(a) under free trade, the home country produces 75 units of output and imports (185 -75= 110 units).

(b) Consumer surplus without tariff = 1/2*B*H

=1/2*(185-0)( 1100 -250)

=1/2* 185* 850

=$78,625

(c)

According to the graph the country imposes tariff= 320 -250

=$70 per units

Due to tariff new import quantity = 150 -110

=40 units.

(d)

Consumer surplus with tariff = 1/2*B*H

=1/2*(150-0)( 1100 -320)

=1/2* 150* 780

=$58,500

Decrease in CS due to tariff =78,625 - 58,500

=$20,625

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