Question

In: Economics

Assume a domestic market imposes a tariff on foreign goods. How will this affect the domestic...

Assume a domestic market imposes a tariff on foreign goods. How will this affect the domestic price? If the foreign market has highly inelastic supply and the domestic market is highly elastic demand, which nation will pay the bulk of the tax?

Solutions

Expert Solution

Ans. If tariff is imposed on imported goods, this will make domestic price to rise. This is because when tariff is imposed, there is shortage of supply at the current domestic price, so the domestic producers increase the price till the domestic demand is equal to its supply.

If the foreign market has highly inelastic supply, this means that even at a high fall in price, the quantity supplied doesn't fall much. On the other hand, in domestic market the elasticity of demand is very high, this means that even a small increase in price will lead to less quantity demanded.

Thus, the major tax burden will fall on the foreign exporters as the quantity supplied is inelastic and quantity demanded is highly elastic.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

question 6 The United States imposes a tariff on foreign limes. How does the tariff affect...
question 6 The United States imposes a tariff on foreign limes. How does the tariff affect the U.S. price of a lime and the production of limes in the United States?
Assume the US imposes a $10 tariff on Swedish hot tubs being imported to the US....
Assume the US imposes a $10 tariff on Swedish hot tubs being imported to the US. Graph the effects of this tariff, showing the following items on the graph: (10 points) consumer surplus producer surplus government revenue deadweight loss what happens to the price after the tariff what happens to the quantity of supply and demand after the tariff Use letters to label the different areas on the graph where need
Explain how the foreign market differs from the home and domestic markets
Explain how the foreign market differs from the home and domestic markets
How do costs affect the pricing strategy in a foreign market?
How do costs affect the pricing strategy in a foreign market?
it is often argued that if foreign goods are kept out of the domestic economy:
it is often argued that if foreign goods are kept out of the domestic economy:
Assume that country X subsidizes its exports and country Y imposes a countervailing tariff that offset...
Assume that country X subsidizes its exports and country Y imposes a countervailing tariff that offset the subsidy. Explain why the relative prices in country Y would be unchanged. Discuss the welfare effects in the two countries. What would be the effect if country Y retaliates with an export subsidy but without countervailing tariffs on the product?
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these...
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firms’ product is Qd = 700 - 1.5P. The supply function of the domestic firms is QSD = 50 + 0.5P, while that of the foreign firms is QSF = 200. Instructions: Enter your responses for equilibrium price rounded to the nearest penny (two decimal places). Enter your responses for equilibrium quantity rounded to one decimal place. a. Determine the equilibrium price and quantity...
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these...
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firms’ product is Qd = 1200 - 2P. The supply function of the domestic firms is QSD = 200 + 1P, while that of the foreign firms is QSF = 250. Instructions: Enter your responses for equilibrium price rounded to the nearest penny (two decimal places). Enter your responses for equilibrium quantity rounded to one decimal place. a. Determine the equilibrium price and quantity...
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these...
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firms’ product is Qd = 750 - 1.5P. The supply function of the domestic firms is QSD = 100 + 1P, while that of the foreign firms is QSF = 200. a. Determine the equilibrium price and quantity under free trade. Equilibrium price: $ Equilibrium quantity:  units b. Determine the equilibrium price and quantity when foreign firms are constrained by a 100-unit quota. Equilibrium price:...
____   73.   If a nation imposes a tariff on imports, a. part of the tax is...
____   73.   If a nation imposes a tariff on imports, a. part of the tax is paid by foreign exporters. b. the entire tax is paid by foreign exporters. c. none of the tax is paid by foreign exporters. d. the tax has no impact on the profits of foreign exporters. ____   74.   Exchange rates determined by the forces of demand and supply are called a. fixed exchange rates. b. floating exchange rates. c. equilibrium exchange rates. d. dirty exchange...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT