Scenario 1

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle.

Economists have estimated the following based on this tariff amount:

World price of wine (free trade): $20 per bottle
Domestic production (free trade): 500,000 bottles
Domestic production (after tariff): 600,000 bottles
Domestic consumption (free trade): 750,000 bottles
Domestic consumption (after tariff): 650,000 bottles

6.

1. Refer to Scenario 1. Before the tariff is imposed, the country imports bottles of wine,

but following the imposition of the tariff, the country will import bottles of wine.

A.

100,000; 100,000

B.

250,000; 50,000

C.

150,000; 50,000

D.

750,000; 650,000

7.

2. Refer to Scenario 1. The imposition of the tariff on wine will cause the surplus of the

domestic producers to by .

A.

rise; $1 million

B.

rise; $500,000

C.

fall; $2.5 million

D.

rise; $2.75 million

8.

3. Refer to Scenario 1. The imposition of the tariff on wine will cause the surplus of the

domestic consumers to by .

A.

fall; $10 million

B.

fall; $250,000

C.

fall; $3.5 million

D.

rise; $3.5 million

9.

4. Refer to Scenario 1. Calculate the government revenue from the tariff.

A.

$250,000

B.

$1.25 million

C.

$3.5 million

D.

$500,000

10.

5. Refer to Scenario 1. The production effect of the tariff on wine is worth

A.

$250,000.

B.

$500,000.

C.

$2.5 million.

D.

$2.75 million.

11.

6. Refer to Scenario 1. The consumption effect of the tariff on wine is worth

A.

$250,000.

B.

$500,000.

C.

$3.5 million.

D.

$2.75 million.