If a tariff is imposed by a country that is large enough to have market power in global markets, the domestic consumer will face an autarkic price than the world price for the product, and this world price will be
By the tariff.

Question

Quizplus · Accepted Answer

When a tariff is imposed by a country with market power, it can create a price difference (known as the "wedge") between the domestic price and the world price. The domestic consumer will face a higher price due to the tariff, which is higher than the world price. The world price, in turn, will be reduced due to the decrease in demand from the importing country. Therefore, the correct choice is A - higher domestic price and reduced world price.

If a Tariff Is Imposed by a Country That Is