What happens when two countries apply tariffs against each
Other in an attempt to capture their termsoftrade gain?
A)Both countries lose because the termsoftrade gain for one country is canceled by the tariff in the other country.
B)Both countries gain because the termsoftrade gain for one country is canceled by the tariff in the other country.
C)Neither country gains nor loses because the termsoftrade gain for one country is canceled by the tariff in the other country.
D)The country initially applying the tariff gains because it captures the termsoftrade gain; the other country neither gains
Nor loses.

Question

What happens when two countries apply tariffs against each
Other in an attempt to capture their terms­of­trade gain?
A)Both countries lose because the terms­of­trade gain for one country is canceled by the tariff in the other country.
B)Both countries gain because the terms­of­trade gain for one country is canceled by the tariff in the other country.
C)Neither country gains nor loses because the terms­of­trade gain for one country is canceled by the tariff in the other country.
D)The country initially applying the tariff gains because it captures the terms­of­trade gain; the other country neither gains
Nor loses.

Quizplus · Accepted Answer

When two countries apply tariffs against each other in an attempt to capture their terms-of-trade gain, both countries will lose because the tariff in each country will cancel out the terms-of-trade gain in the other country. Therefore, both countries will end up paying higher prices for imported goods, which will negatively affect their economies.

What Happens When Two Countries Apply Tariffs Against Each