(c) Using the diagram on page 10, calculate the import expenditure on rice.
$3 x (11,000 – 2,000) = $27,000
Local domestic producers produce 2,000kg of rice when the price of rice is $3 but the quantity demanded by domestic citizens is 11,000.
9,000kg of rice are bought at $3 a kg therefore $27,000 was spent on imported rice.
(e) Alpha’s government decides to impose a $2 tariff on each kilogram of imported rice. Using the diagram on page 10, calculate the government revenue that results from the imposition of the tariff.
The Tariff is $2 and it’s only charged on goods that are imported.
The $2 tariff raises the price of rice to $5 per kg and our domestic producers will produce 6,000kg of rice and 9,000 kg of rice will be demanded.
That means that 3,000kg will be imported at $2 per kg =
$2 x 3,000 = 6,000 = Gov’t Revenue
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