Use the following to answer questions :
Figure 18-3
-If the world price in Figure 18-3 were $1.00, how much revenue would be collected by a tariff that maintained a domestic supply of 200 units?
A)$50
B)$100.
C)$150.
D)$200.
E)None of the above.

Question

Use the following to answer questions :
Figure 18-3 
-If the world price in Figure 18-3 were $1.00, how much revenue would be collected by a tariff that maintained a domestic supply of 200 units?
A)$50 
B)$100. 
C)$150. 
D)$200. 
E)None of the above.

Quizplus · Accepted Answer

At the world price of $1.00, the domestic quantity supplied would be 200 units (point A), and the domestic quantity demanded would be 300 units (point B), resulting in imports of 100 units. If a tariff is implemented to maintain a domestic supply of 200 units, it would need to be set at the difference between the world price and the domestic supply curve at this quantity, which is $1.50 ($1.00 + $0.50). The revenue collected by the tariff is the area of the shaded triangle, which can be calculated as 0.5 x (100 units) x ($0.50) = $25. Thus, the total revenue collected with a domestic supply of 200 units would be $25 x 6 = $150. Therefore, the correct answer is C.

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