Question

Policymakers in a small country impose a specific tariff of $2.00 per unit. Prior to the tariff the country imported 10,000 units and after the tariff 8,000 units. The redistributive effects of the tariff are:

Select one:


a. such that $16,000 is forward shifted onto domestic consumers.


b. impossible to determine with the information given.


c. shared equally between domestic producers and domestic consumers.


d. such that $4,000 is backward shifted onto domestic producers.

Answer 1

Option A is the correct answer.

Step-by-step explanation:

Redistribution effect is also referred to as the transfer effect.

Under the redistribution effect, the price level increases after exacting tariff, this, in turn, increases the producer surplus and decreases the consumer surplus.

Based on the given information tariff =$2 per unit; Total revenue before tariff = PQ, where P is price and Q is quantity.

Let us denote the original price as P.

Therefore, total revenue before tariff = P*10000 = 10000P.

After imposing tariff $2 the price raises and becomes: P+2

So,

Total revenue after tariff = (P+2)*8000 = 8000P+16000

This implies that the extra $16000 amount bears consumers after imposing the specific tariff.

Thus, option A is the correct answer.