The effects of a tariff on imported kumquats can be divided into the following categories: tariff revenues

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The effects of a tariff on imported kumquats can be divided into the following categories: tariff revenues received by the treasury ($8 million); increased use of resources to produce more kumquats domestically ($6 million); the value of reduced consumption by domestic consumers ($13 million); and increased profits received by domestic kumquat growers ($5 million). A CBA from the national perspective would find costs of the tariff equal to $19 million-the sum of the costs of increased domestic production and forgone domestic consumption ($6 million + $13 million). The increased profits received by domestic kumquat growers and the tariff revenues received by the treasury simply reflect higher prices paid by domestic consumers on the kumquats that they continue to consume and, hence, count as neither benefits nor costs. Thus, the net benefits of the tariff are negative (-$19 million). Consequently, the CBA would recommend against adoption of the tariff.

1. Assuming the agriculture department views kumquat growers as its primary constituency, how would it calculate net benefits if it behaves as if it is a spender?

2. Assuming the treasury department behaves as if it is a guardian, how would it calculate net benefits if it believes that domestic growers pay profit taxes at an average rate of 20 percent?

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Cost-Benefit Analysis Concepts and Practice

ISBN: 978-1108401296

5th edition

Authors: Anthony E. Boardman, David H. Greenberg, Aidan R. Vining, David L. Weimer

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