Question

Consider two hypothetical countries, Aniva and Kartaly. Both countries produce iGadgets, and the price of iGadgets is lower in Aniva than in Kartaly. If Aniva and Kartaly open to trade, producers would be more likely to lobby their government for an import tariff on iGadgets in order to protect themselves from foreign competition.
Which of the following statements about the effects of the tariff compared to free trade are correct? Check all that apply.

a. In Aniva, consumption decreases and domestic production increases.
b. In Kartaly, consumption decreases and domestic production increases.
c. The tariff doesn’t need to increase the price of the imported iGadget above its domestic price in order to reduce the price differential.
d. The tariff always raises the price of imported iGadgets above their domestic price.
e. In Kartaly, some workers at retail and shipping companies that import iGadgets lose their jobs.

Answer 1

Answer:

A and B

Explanation:

A and B options are scenario bound to happen in a tariff regime. The local consumption will simply be dwarfed by the glut in the local production. Thus, local demand will reduce in the face of an excess supply.