Question

Tariff Analytical Question: Figure: A Tariff on Oranges in South Africa Price of oranges Domestic supply Pt 5.00 G Pw3.00 Domestic demand P-1.00 100 150 250 290 Quantity of oranges Use the following graph and information to answer the following questions: 1) Assume that the world price of Oranges (Pw) is $3.00 per pound. Domestic Quantity Supply is 100, and the Domestic Quantity Demanded is 290 at the current world price of $3.00 What is the level of imports in South Africa at the current world price? 2) Assume that a $2.00 tariff is imposed on imports and raises the world price from Pw= $3.00 to Pt-$5.00 At a price of (Pt) domestic quantity supplied is? At a price of (Pt) Domestic Quantity Demanded? What is the new level of imports in South Africa after the tariff is imposed? 3) Assume that the area ( represents the tariff revenue on imports. Calculate the Tariff Revenue collected from setting a tariff on imports in South Africa: 4) Calculate producer surplus before the tariff is imposed and calculate producer surplus after the tariff is imposed on imports:

Answer 1

1) Imports = quantity demanded - quantity supplied

= 290-100 = 190

2) at P=5

Quantity supplied = 150

Quantity demanded = 250

Imports = 250-150 = 100

3) Tariff revenue = tariff*imports = 2*100 = 200

4) PS before tariff = 0.5*100*(3-1) = 100

PS after the tariff = 0.5*150*(5-1) = 300