The diagram shows Dd and Sd as the domestic demand and supply curves for a product. Sw shows the world supply of the product under free trade, where the world price is Pw. The product’s starting domestic-market equilibrium consumption level is at E. If a tariff of t is introduced, world supply is then shown by Sw + tariff, at a price of Pw + t. What would be the level of domestic production and the total government revenue from tariffs after the tariff of t is introduced?
- Alevel of domestic production: OQ2; total level of revenue from tariffs: JKMN
- Blevel of domestic production: OQ2; total level of revenue from tariffs: OQ2MPw
- Clevel of domestic production: Q1Q2; total level of revenue from tariffs: EJKL
- Dlevel of domestic production: Q2Q3; total level of revenue from tariffs: KLM + JNE