Problem Set #4 - Tariffs

Due by the end of class on February 9, 1998.

1. You are given the following information about sugar in the United States:


                         Situation            Situation
                       without tariff        with tariff

world price           $0.10 per pound      $0.10 per pound
tariff (specific)            0             $0.15 per pound
U.S. domestic price   $0.10 per pound      $0.25 per pound
U.S. consumption     300 million pounds   200 million pounds
U.S. production      100 million pounds   150 million pounds

a. Calculate the loss to U.S. buyers of sugar from imposing the tariff.

b. Calculate the gain to U.S. sugar producers from imposing the tariff.

c. Calculate the tariff revenue collected by the government.

d. Calculate the net gain or loss to the U.S. economy as a whole from the tariff.

2. Discuss the arguments for and against each of the following justifications for tariffs:

a. infant industries
b. national defense
c. income redistribution
d. optimal tariff
e. promotion of domestic production

Click here for the answers.

David A. Latzko
318 COB
Department of Business and Economics
Wilkes University
Wilkes-Barre, PA 18766
phone: (717) 408-4718
fax: (717) 408-4917
dlatzko@wilkes.edu
wilkes1.wilkes.edu/~dlatzko