Answer:
The approximate change in producer surplus due to the $1 tariff on basketballs would be about $0.625 per unit of basketballs produce
Step-by-step explanation:
To determine the approximate change in producer surplus due to the imposition of a $1 tariff on basketballs when the world price is $3, we need to make some assumptions about the market and the elasticity of demand and supply.
Assuming that the domestic market for basketballs is competitive and that there are no other market distortions or externalities, the imposition of a tariff would increase the domestic price of basketballs to $4 ($3 + $1). This increase in price would result in a reduction in the quantity of basketballs demanded, which would cause a decrease in consumer surplus. At the same time, the increase in price would result in an increase in producer surplus for domestic producers who can now sell their products at a higher price than before the tariff was imposed.
The change in producer surplus can be approximated by calculating the difference between the producer surplus before and after the tariff. If we assume that the domestic supply of basketballs is perfectly elastic (i.e., the quantity supplied is infinitely responsive to changes in price), then the producer surplus before the tariff is zero since the domestic price is equal to the world price.
After the tariff, the domestic price is $4, and the quantity supplied will increase to meet the new higher price. If we assume that the supply curve is upward sloping, then the increase in price will result in an increase in producer surplus. The change in producer surplus can be calculated as follows:
Change in Producer Surplus = (New Price - World Price) x New Quantity Supplied / 2
where:
New Price = $4
World Price = $3
New Quantity Supplied = The increase in quantity supplied due to the tariff
To calculate the increase in quantity supplied due to the tariff, we need to know the elasticity of supply. If the supply of basketballs is relatively elastic (i.e., quantity supplied is highly responsive to changes in price), then the increase in quantity supplied will be relatively large. Conversely, if the supply of basketballs is relatively inelastic (i.e., quantity supplied is not very responsive to changes in price), then the increase in quantity supplied will be relatively small.
Assuming a relatively elastic supply curve, we might estimate that the increase in quantity supplied due to the $1 tariff is roughly 25% of the original quantity supplied at the world price ($3). So, the new quantity supplied would be approximately 1.25 times the original quantity supplied.
Therefore, the change in producer surplus would be:
Change in Producer Surplus = ($4 - $3) x (1.25 x Original Quantity Supplied) / 2
Change in Producer Surplus = $0.50 x (1.25 x Original Quantity Supplied)
Change in Producer Surplus = $0.625 x Original Quantity Supplied
So, the approximate change in producer surplus due to the $1 tariff on basketballs would be about $0.625 per unit of basketballs produced.