Compute the decline in consumer surplus

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Reference no: EM1361565

The United States currently imports all of the tea that it consumes domestically. The annual demand for tea by U.S. consumers is given by the demand curve Q=250-10P, where Q is quantity (in millions of pounds) and P is the market price per pound of tea. World producers can harvest and ship tea to the U.S. distributors at a constant marginal (=average) cost of $8 per pound. U.S. distributors can in turn distribute tea to retail stores for a constant $2 per pound. The U.S. tea market is competitive. The Congress is considering imposing a tariff on tea imports of $2 per pound.

If there is no tariff, how much do consumers pay for a pound of tea? What is the quantity demanded?

If this tariff is imposed, how much will consumers pay for a pound of tea? What is the quantity demanded?

Compute the decline in consumer surplus.

Compute the tax revenue collected by the government.

Does the tariff result in a net gain or a net loss to society as a whole?

Reference no: EM1361565

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