In a small country, an export tariff will cause exports to ___________ and domestic consumption to ________.
A) rise; fall
B) rise; rise
C) fall; rise
D) fall; fall

Question

Quizplus · Accepted Answer

When an export tariff is imposed, the price of the good being exported increases. This makes the good more expensive for foreign buyers, which in turn reduces the demand for the good. Exporters will, therefore, reduce the quantity of exports to adjust to the lower demand, causing exports to fall.

On the other hand, domestic consumption of the good will rise because the price of the good being exported has increased. The higher price of the good in foreign markets makes it less attractive, incentivizing domestic buyers to purchase the good instead. As a result, domestic consumption of the good will rise.

In a Small Country, an Export Tariff Will Cause Exports