Question 2

The United States imports beer from Germany at large volumes. The graph below

shows the supply and demand for beer in the United States. The country currently

imports at a world price of $15.

a) Suppose the country imposes a tariff of $3. The price for consumers rises to

$17. Graphically show how this affects the market. (Qs = 10, Qd = 15.)

b) What is the percentage rate of the tariff?

c) Who will pay the tariff? (How is the extra $3 distributed?)

d) Calculate the gains and losses to consumers, domestic producers, foreign

producers, and the government.

e) Calculate the deadweight loss. Was this a good tariff for the United States?

f) Aluminum cans are often used to package beer. If the country were to

impose a tariff on aluminum cans, would the percentage rate of this tariff be

higher or lower than the one you calculated in b)? Explain.