As in Question 5, you have been asked to quantify the effects of removing an import duty;

somebody has already estimated the effects on the country’s production, consumption, and imports. This time the facts are different. The import duty in question is a 5 percent tariff on imported motorcycles. You are given the information shown in the table.

Calculate the following:

a. The consumer gain from removing the duty.

b. The producer loss from removing the duty.

c. The government tariff revenue loss.

d. The net effect on the country’s well-being.
Why does the net effect on the country as a whole differ from the result in Question 5?

Transcribed Image Text:

World price of motorcycles Tariff at 5 percent Domestic price Number of cycles purchased domestically per year Current Situation with 5 Percent Tariff $2,000 per cycle Estimated Situation without Tariff $2,050 per cycle 0 $2,050 per cycle $100 per cycle $2,100 per cycle 100,000 105,000 Number of cycles produced domestically per year 40,000 35,000 Number of cycles imported per year 60,000 70,000