Meridia is a small economy that buys leather shoes on the world market at a fixed world price of $20 per pair; because Meridia's own demand and supply are small relative to the world market, its purchases do not change this world price. Table 1 shows Meridia's domestic demand an…

Answer: ((a)) At $20 per pair, quantity demanded is 90 thousand pairs and quantity supplied is 30 thousand pairs, so imports are 90-30=60 thousand pairs per year ((b)) The new domestic price is $24 per pair ($20 plus the $4 tariff); at $24, quantity demanded is 70 thousand pairs and quantity supplied is 50 thousand pairs, so imports fall to 70-50=20 thousand pairs per year ((c)) Tariff revenue equals the tariff multiplied by the post-tariff quantity of imports in pairs, 4 × 20,000 = 80,000, i.e. $80,000 ((d)) Consumers pay a higher price ($24 instead of $20) and buy fewer pairs of shoes (70,000 instead of 90,000), so they are worse off; domestic producers receive the higher $24 price and expand their own output from 30,000 to 50,000 pairs, raising their revenue and likely their emplo…. Part (a): Imports before the tariff Reading the row for the world price of $20 in Table 1: quantity demanded is 90 thousand pairs and quantity supplied is 30 thousand pairs. Since Meridia is a small economy trading freely at the fixed worl…

AS Level Economics 9708: Calculating the Effects of a Tariff on Imports

Price ($ per pair)	Quantity demanded (thousand pairs)	Quantity supplied (thousand pairs)
18	100	20
20	90	30
22	80	40
24	70	50
26	60	60

Price ($ per pair)

Quantity demanded (thousand pairs)

Quantity supplied (thousand pairs)

100

Part (a): Imports before the tariff

Reading the row for the world price of $20 in Table 1: quantity demanded is 90 thousand pairs and quantity supplied is 30 thousand pairs. Since Meridia is a small economy trading freely at the fixed world price, the gap between what domestic consumers want to buy and what domestic producers are willing to supply is met by imports:

$\text{imports} = Q_d - Q_s = 90 - 30 = 60 \text{ thousand pairs per year}$

Part (b): The new price and imports after the tariff

A specific tariff of $4 per pair is added on top of the fixed world price, and because it is passed on to consumers in full, the new domestic price is:

$20 + 4 = 24$

so the new domestic price is $24 per pair.

Reading the row for $24 in Table 1: quantity demanded is 70 thousand pairs and quantity supplied is 50 thousand pairs. Imports after the tariff are:

$Q_d - Q_s = 70 - 50 = 20 \text{ thousand pairs per year}$

So the tariff cuts the quantity of shoes imported from 60 thousand pairs down to 20 thousand pairs per year, because the higher price both discourages consumers from buying as much and encourages domestic producers to supply more.

Part (c): Tariff revenue

The government collects the $4 tariff on every pair that is still imported after the tariff, not on the pairs that used to be imported before it. Converting 20 thousand pairs into pairs first:

$20 \text{ thousand pairs} = 20{,}000 \text{ pairs}$

Then multiplying by the tariff:

$4 \times 20{,}000 = 80{,}000$

So the government collects $80,000 in tariff revenue.

Part (d): Effects on consumers and producers

Consumers: before the tariff, consumers bought 90,000 pairs at $20 each; after the tariff, they pay the higher price of $24 per pair and buy only 70,000 pairs. Consumers are worse off, they pay more for each pair they still buy and end up buying fewer pairs overall, so they lose consumer surplus.

Producers: before the tariff, domestic producers supplied 30,000 pairs at $20 each; after the tariff, they receive the higher domestic price of $24 per pair and expand their own output to 50,000 pairs. Domestic producers therefore gain, they earn more revenue on each pair sold and sell more pairs, which is also likely to support more jobs in the domestic shoe industry.

Final answers

(a) $Q_d=90$ thousand pairs, $Q_s=30$ thousand pairs, imports $=$ 60 thousand pairs.
(b) New price $=$ $24 per pair; imports fall to 20 thousand pairs.
(c) Tariff revenue $=$ $80,000.
(d) Consumers pay more ($24) and buy less (70,000 pairs); producers receive more ($24) and supply more (50,000 pairs).