Consider Figure 6, which is the graph for the small home country doing tariffs (

Question

Consider Figure 6, which is the graph for the small home country doing tariffs (from our lectures). Which of the following is most true? area C is equivalent to the total of areas a and b area X is equivalent to the total of areas b and d area Z is equivalent to the total amount of imports area Z is equivalent to the total of areas b and d Consider Figure 6, which is the graph for the small home country doing tariffs (from our lectures). Area C, as it is directly interpreted in this figure, is a measure of. But in our analysis of the quota (graph not shown) it is also a measure of. consumer surplus; producer surplus the deadweight loss; quota rents quota rents; government revenues government revenues; quota rents Consider Figure 6, which is the graph for the small home country doing tariffs (from our lectures). Area X is a measure of. government revenues from a tariff the deadweight loss from a tariff quota rents from a tariff consumer surplus and producer surplus from a tariff

Explanation / Answer

(29) (d)

In the home country graph, deadweight loss is equal to sum of area b & d.

In the importing country's graph, as seen from import demand curve, deadweight loss is area Z.

So,

Z = b + d

(30) (d)

Area C is government tariff revenue if a tariff is imposed, which is equal to quota rent is a quota is imposed.

(31) (a)

Area X = [(Pw + t) - Pw] x M2 = t x M2 = Government tariff revenue, since

t: Tariff per unit of import and

M2: Amount of imports

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