Exhibit 17.2

-Refer to Exhibit 17.2, which shows U.S. demand for and domestic supply of a good. Suppose the world price of the good is $1.00 per unit and a specific tariff of $0.50 per unit is imposed on each unit of the imported good. In such a case, _____

Question

Exhibit 17.2
 
-Refer to Exhibit 17.2, which shows U.S. demand for and domestic supply of a good. Suppose the world price of the good is $1.00 per unit and a specific tariff of $0.50 per unit is imposed on each unit of the imported good. In such a case, _____

Quizplus · Accepted Answer

With a world price of $1.00 and a specific tariff of $0.50, the effective price in the domestic market becomes $1.50. At this price, domestic supply is less than domestic demand, leading to imports to meet the excess demand. The quantity imported is the difference between the quantity demanded and the quantity supplied at the effective price of $1.50. Without the specific values from Exhibit 17.2, the general principle is that a tariff increases the domestic price, reduces imports compared to the free trade scenario, but does not lead to exports if the domestic price with the tariff is above the world price.

Exhibit 17.2 -Refer to Exhibit 17.2, Which Shows U.S. Demand for and U.S