Calculate quantity consumed after imposition of import fee

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Reference no: EM13885555

A country imports 5 billion tonnes of coal per year and domestically produces another 4.5 billion tonnes of coal per year. The world price of coal is $50 per tonne. Assuming linear schedules, economists estimate the price elasticity of domestic supply to be 0.3 and the price elasticity of domestic demand to be 0.2 at the current equilibrium. Consider the changes in social surplus that would result from imposition of a $20 per tonne import fee on coal that would involve annual administrative costs of $125 million. Assume that the world price will not change as a result of the country imposing the import fee, but that the domestic price will increase by $20 per tonne. Assume national standing. Calculate the following:

(a) Quantity consumed after the imposition of the import fee.

(b) Quantity produced after the imposition of the import fee.

(d) Estimate the annual social net benefits of the import fee.

Reference no: EM13885555

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