CFA Level I · CFA Level I Exam · International Trade
A small country imports steel at a world price of 600 per tonne. It imposes a 10% tariff. Domestic consumption at the tariff-inclusive price is 120 tonnes and domestic production is 40 tonnes. Under free trade, imports would have been higher. The tariff revenue collected is closest to:
Tariff revenue equals the per-unit tariff times imports. Imports are 120 minus 40, or 80 tonnes, and the tariff is 10% of 600, or 60 per tonne. Revenue is 80 times 60, which is 4,800.
- A660
- B4,800Correct
- C5,280
Explanation
Imports under the tariff = 120 - 40 = 80 tonnes. The tariff per tonne = 10% x 600 = 60. Revenue = 80 x 60 = 4,800. The 5,280 option applies the tariff to the tariff-inclusive price and quantity (80 x 660), which is wrong.
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