The impact of avoiding tariff and taxing the consumption instead.

Question

Vietnam has a policy of free trade in motorcycles which are sold in world markets at a price of 10,000 per motorcycle. Under free trade, Vietnam produces 100,000 motorcycles and imports 100,000 motorcycles. To provide some protection to the domestic industry, Vietnam imposes an import tariff of $1500 per motorcycle. With this tariff in place, production in Vietnam rises by 5,000 motorcycles and consumption drops by the same amount. Calculate the effects of the tariff on: a. Consumer Surplus b. Producer Surplus c. Government Revenues d. Overall Welfare e. If the tariff imposed by the Vietnamese had led to small reduction in world prices of, say, 250 dollars, how, qualitatively, would the welfare calculations (a), (b), (c) and (d) above change?

Answer 1

Question

Chapter 9, Problem 9PA

(a):

To determine

The impact of avoiding tariff and taxing the consumption instead.

(b):

To determine

The impact of avoiding tariff and taxing the consumption instead.

(c):

To determine

The impact of avoiding tariff and taxing the consumption instead.

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Vietnam has a policy of free trade in motorcycles which are sold in world markets at a price of 10,000 per motorcycle. Under free trade, Vietnam produces 100,000 motorcycles and imports 100,000 motorcycles. To provide some protection to the domestic industry, Vietnam imposes an import tariff of $1500 per motorcycle. With this tariff in place, production in Vietnam rises by 5,000 motorcycles and consumption drops by the same amount. Calculate the effects of the tariff on: a. Consumer Surplus b. Producer Surplus c. Government Revenues d. Overall Welfare e. If the tariff imposed by the Vietnamese had led to small reduction in world prices of, say, 250 dollars, how, qualitatively, would the welfare calculations (a), (b), (c) and (d) above change?

8. Which of the following would be a deadweight loss from a tariff? A) The shift of consumer surplus to government B) The increase in producer surplus c) The decrease in consumer surplus D) The decrease in consumer surplus due to a drop in consumption 3|Page 9. Use the graph below and the following information to answer the next question. The world price of soybeans is $2.00 per bushel, and the importing country is small enough not to affect the world price. 2.25 2.00 World price 60 70 130 140 Qimillions bushels Based on Figure above, suppose the government puts a tariff of $0.25 per bushel on soybean imports. How much will the tariff reduce imports? A) Imports will decrease by 10 million bushels. B) Imports will decrease by 20 million bushels. C) Imports will decrease by 60 million bushels. D) Imports will not change after the tariff.

Consider a small country that exports steel. Suppose that a "pro-trade" government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. 1. How does this export subsidy affect the 1. domestic price of steel, 2. the quantity of steel produced, 3. the quantity of steel consumed, and 4. the quantity of steel exported? 2. How does it affect 1. consumer surplus, 2. producer surplus, 3. government revenue, and 4. total surplus? 3. Is it a good policy from the standpoint of economic efficiency? (Hint: the analysis of an export subsidy is similar to the analysis of a tariff)