1.7. 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 = 250 −

10P, where Q is quantity (in millions of pounds) and P is the market price per pound of coffee. World producers can harvest and ship coffee to U.S.

distributors at a constant marginal (= average) cost of $8 per pound. U.S. distributors can in turn distribute coffee 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?