Suppose the world price of a good is £20 per unit. Country Almia imports this good because the domestic market clearing price is £27 per unit. Domestic producers in country Almia supply 1,000 units of this good at the world price, while another 2,000 units is imported. However, in an attempt to protect the domestic producers of this good, the government of Almia imposes a per unit tariff of £2 on the import of this good. Which of the following conclusions can be drawn from this information?
A) The tariff increases the domestic price to £27 per unit.
B) With the imposition of the tariff, Almia will no longer need to import any amount of this
C) The quantity demanded in the domestic market before the tariff was imposed was 2,000 units.
D) The new quantity demanded at £22 per unit is less than 3,000 units.

Question

Quizplus · Accepted Answer

The tariff increases the price of imports to £22 per unit, which is still below the domestic market clearing price of £27, so the quantity demanded will be less than 3,000 units as some consumers may reduce their demand due to the higher price.

Suppose the World Price of a Good Is £20 Per