SCENARIO: SUGAR TRADE IN BIRDONIA
In autarky, suppose that equilibrium sugar price is $100 per
Ton in Birdonia, a small agricultural nation.Now, suppose
Birdonia engages in free trade with the rest of the world.
The world price of sugar is $125 per ton.
Reference: Ref 101
(Scenario: Sugar Trade in Birdonia) What action must the
Government of Birdonia take to ensure that Birdonians do
Not import sugar at the world price of $125?
A)It must place a $25 per ton tax on Birdonian sugar exports.
B)It must levy a countervailing duty of $50 a ton on Birdonian sugar exports.
C)It must agree to voluntarily restrain its exports to $125 per ton.
D)It must levy a tariff of $50 per ton on imported sugar.

Question

SCENARIO: SUGAR TRADE IN BIRDONIA
In autarky, suppose that equilibrium sugar price is $100 per
Ton in Birdonia, a small agricultural nation.Now, suppose
Birdonia engages in free trade with the rest of the world.
The world price of sugar is $125 per ton.
Reference: Ref 10­1
(Scenario: Sugar Trade in Birdonia) What action must the
Government of Birdonia take to ensure that Birdonians do
Not import sugar at the world price of $125?
A)It must place a $25 per ton tax on Birdonian sugar exports.
B)It must levy a countervailing duty of $50 a ton on Birdonian sugar exports.
C)It must agree to voluntarily restrain its exports to $125 per ton.
D)It must levy a tariff of $50 per ton on imported sugar.

Quizplus · Accepted Answer

To ensure that Birdonians do not import sugar at the world price of $125, the Government of Birdonia must levy a tariff of $50 per ton on imported sugar. This will make the domestic price of sugar in Birdonia $150 per ton (including the tariff), which is higher than the world price of $125 per ton. As a result, Birdonians will be deterred from importing sugar and will instead purchase sugar domestically.