Question

27 2$ Refer to the diagram below. Price $13 Domestic Supply 00 $1.00 Tarih ) un World Price Domestic Demand 30 40 60 84 96 Quantity Assuming that an import quota is given to foreign producers for free. What would be the total revenue received by foreign producers if an import quota is imposed instead of a $1 per unit tariff?

Answer 1

7. The correct option would be

• Revenue = $44

The import quota acts same as that of tariff of $1. If the tariff was imposed, then the government revenue would be tariff ($1) times quantity supplied after tariff (84-40 or 44 units), ie $1 times 44 or $44. But, as quota is imposed, this revenue goes to the foreign producers, which amounts to $44.

8. The correct option would be

• inefficient because the MSC of the 400th pound exceeds its MSB.

At 400 units (pounds), the MSC would be more than the MSB, meaning that the MSC exceeds MSB. The opportunity cost associated with the production is included in the marginal private cost, not the social cost. The term social opportunity cost is used to reflect opportunity cost associated with MSC. At 400th units, the MSC exceeds the MSB, and the efficient point would be where MSC equals the MSB.