The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 25010P . World producers can harvest and ship coffee to U.S. distributors at a constant marginal cost of $8 per pound (assume AC = MC).
U.S. distributors can in turn distribute coee for a constant $2 per pound. The U.S. coffee market is competitive. Congress is considering a tariff on coffee imports of $2 per pound.
(a) If there is no tariff, how much do consumers pay for a pound of coffee? What is the quantity demanded?
(b) If the tariff is imposed, how much will consumers pay for a pound of coffee? What is the quantity demanded?
(c) Calculate the lost consumer surplus.
(d) Calculate the tax revenue collected by the government.
(e) Does the tariff result in a net gain or a net loss to society as a whole?