CA Foundation · Business Economics · International Trade
India's domestic price of a good is ₹500 per unit, which equals its world price of ₹500 when there is free trade. The government imposes a specific tariff of ₹50 per unit. At the new domestic price, domestic production rises from 400 to 440 units. Imports fall from 300 to 220 units. What is the government's tariff revenue?
Tariff revenue equals the tariff per unit multiplied by the quantity actually imported after the tariff. Here it is ₹50 × 220 units = ₹11,000. Using the earlier import quantity of 300 units or domestic output would be wrong, because the duty is collected only on current imports.
- A₹11,000Correct
- B₹15,000
- C₹22,000
- D₹12,000
Explanation
Tariff revenue = tariff per unit × imports after the tariff = 50 × 220 = ₹11,000. Using the pre-tariff imports of 300 gives ₹15,000, which is the wrong base. Using 440 units of domestic production gives ₹22,000, which is also wrong since domestic output pays no tariff. The extra ₹12,000 option uses 240 units, which is not given.
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