EC 340

Answers to Problem Set #4

1. The tariff drives the domestic price up frm 10 cents to 25 cents. Consumer surplus falls by ($0.15)(200)+ (1/2)(100)($0.15) = $37.5 million. Producer surplus rises by ($0.15)(100)+(1/2)(50)($0.15) = $18.75 million. The tariff revenue received by the government equals ($0.15)(50) = $7.5 million. Net national welfare falls by $11.25 million.

2. See the notes for lecture 4.



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