Suppose that the United States currently imports Tennis racquets without tariff, with the results shown in the first column of numbers below. Congress is thinking of imposing a tariff of $20 per racket and has asked you to estimate the gains and losses to different groups. Your findings are shown in the right-hand column below.
|
Free-trade situation
(no tariff)
|
Situation with $20
tariff on bats
|
|
|
U.S. domestic price of rackets
|
$60
|
$75
|
|
Tariff
|
$0
|
$20
|
|
World price of rackets
|
$60
|
$50
|
|
U.S. production of rackets per year
|
200,000
|
250,000
|
|
U.S. imports of rackets per year
|
300,000
|
200,000
|
|
U.S. consumption of rackets per year
|
500,000
|
450,000
|
a. What is the gain or loss to U.S. tennis racquets buyers from the tariff?
b. What is the gain or loss to U.S. tennis producers from the tariff?
c. What is the government revenue from the tariff?
d. What is the net gain or loss for the U.S. as a whole?