Calculation of gain and loss incurred due to the imposition of tariff.
The annual demand for coffee by the U.S consumers is Q = 250 - 10P . The world producers can harvest and ship coffee to U.S. distributers at a constant marginal (=average) cost of $8 per pound. The U.S. distributors can in turn distribute coffee for a constant $2 per pound. The U.S. coffee is competitive. Congress is considering a tariff on coffee imports of $2 per pound.
a) If the tariff is imposed, explain how much consumers will pay for a pound of coffee? What is the quantity demanded?
b) Calculate the lost consumer surplus?
c) Compute the tax revenue collected by the government?
d) Does the tariff result in a net gain or a net loss to society as a whole?