Suppose country A collectively enjoys monopsony power in good X. If country A imposes a tariff on the imports of good X, the world price of good X will:
A)fall.
B)rise.
C)remain unaffected.
D)become equal to the tariff-inclusive price in country A.

Question

Quizplus · Accepted Answer

When a country imposes a tariff on the imports of good X, it raises the price of the imported good relative to the domestic price. Since country A has monopsony power, it can dictate the domestic price. Therefore, as the world price rises due to the tariff, country A will still be able to purchase good X at a lower price. This will result in a decrease in the world price of good X.

Suppose Country a Collectively Enjoys Monopsony Power in Good X