Suppose Ecuador imposes a tariff on imported bananas. If the increase in producer surplus is $50 million, the reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is $30 million, then the tariff generates $130 million in revenue for the government.

Question

Quizplus · Accepted Answer

The tariff revenue for the government is calculated as the increase in producer surplus plus the deadweight loss minus the reduction in consumer surplus, which does not match the $130 million stated. The correct calculation for tariff revenue is based on the quantity of imports multiplied by the tariff rate, not directly derived from changes in surplus and deadweight loss.

Suppose Ecuador Imposes a Tariff on Imported Bananas