The diagram at the right shows the Canadian market for olives, which we assume t
ID: 1103983 • Letter: T
Question
The diagram at the right shows the Canadian market for olives, which we assume to be competitive. The world price is Pw. The Canadian government imposes a tariff of t dollars per unit. The domestic price increases to Pw+t Market for Olives a. The quantity of olives imported before the tariff is imposed is thousand units. The quantity of olives imported after the tariff is imposed is | | thousand units. (Round your responses to the nearest whole number) b. As a result of the imposition of the tariff, Canadian production of olives increases bythousand units. (Round your response to the nearest whole number) The producer surplus of Canadian olives increases by Pw +t 41 Tariff c. Which area represents the loss of consumer surplus associated with the tariff shown? 27 35 units) O B. A 10 17 antity O D. A B+C+DExplanation / Answer
(a) The quantity of import before tariff = 35 -10
= 25 thousand units
The quantity of import after tariff = 27 -17
= 10 thousand units
(b)
Due to imposition of tariff the Canadian production of olives has increased by = 17 -10
= 7 thousand units of olive
Canadian producer surplus has increased by area =Shaded area D
= Area of rectangle + area of triangle
= L*B + 1/2* BH
=(10-0) (41-35) + 1/2*(17-10)(41-35)
=10 * 6 + 0.5 * 7 * 6
=60 + 21
= $81
(c)
Loss of consumer surplus due to tariff= area ( A+B+C+D)
This is because CS is area below the demand curve and above the price.
(d)
The tariff revenue has been shown by the area B.
(e)
The dead weight loss has been represented by the area (C+A)
Hence option c is the correct answer.