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What is the impact of the tariff removal on producer surplus

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Question: 2 Suppose Home has a tariff of $2 on the imports of a pair of shoes. Home is SMALL and the world price of shoes is $15 a pair. Home produces 100 pairs of shoes and consumes 300 pairs of shoes. Assume that Home's supply and demand curves are linear.

2a) Draw a graph that represents the initial equilibrium in the Home market of shoes. Clearly label all the curves you draw, the world price, the domestic price, and the quantities supplied and demanded in Home.

Now suppose that Home removes its tariff entirely. As a result, consumption of shoes rises by 25 pairs and production of shoes falls by 25 pairs.

2b) What is the impact of the tariff removal on producer surplus? Provide a number and clearly label the area corresponding to the change in producer surplus in the graph drawn for 2a).

2c) What is the impact of the tariff removal on consumer surplus? Provide a number and clearly label the area corresponding to the change in consumer surplus in the graph drawn for

2d) What is the impact of the tariff removal on government revenue? Provide a number and clearly label the area corresponding to the change in government revenue in the graph drawn for

2a) Is the country better off or worse off after the tariff is removed and by how much?

 

Reference no: EM133599367

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