Question

There are A B country, they start to free trade. If A put a traffi on import, the world price will increase or decrease? And how about the demostic price for A And B? And if A put a traffi on export, How about the world price,domestic of A, B ?

Answer 1

Since there are two country A and B, they start to free trade. If Country A put a traff on import, the world price will decrease because import tariff increases the quantity of goods available in the world market while demand remains same.

Since the import tariff has been imposed in country A, so price of imported goods will increases and it also lead to price of non-exported good also to increase. Hence price in the Domestic country A will increase because supply in the country A decreases.

On the other hand due to import tariff, the supply in the country B will be more, so price in the domestic country B will decrease.

When country A imposes export tariff, then it will cause an decrease in the price of the good in the country A (domestic market) because now there is more supply of goods in the domestic country. There will be an increase in the world price because the supply in the world will decrease due to export tariff . Hence the price in the domestic country B will also increase.