Assume that the above figure represents the domestic supply and demand for coffee.The domestic price with no trade is represented by 5.50 . The price with free trade is represented by 4.00 .
Assume that the government places a 1 per pound tariff on imported coffee, which decreases the domestic quantity demanded of coffee by 100 million pounds and increases domestic production by 100 million pounds. Draw the rectangle that would represent the amount of tax revenue that the government would realize from this tax and calculate the dollar figure.
Question 2
Refer to Figure 4-4. At the equilibrium price of 15 consumers are willing to buy 80 pounds of tiger shrimp. Is this an economically efficient quantity?
A) No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.
B) No, the marginal cost of the 80th unit exceeds the marginal benefit of the 80th unit.
C) Yes, because marginal cost is zero at the 80th unit.
D) Yes, because 15 is the price where the marginal benefit is equal to the marginal cost.
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