This graph demonstrates the domestic demand and supply for a good,as well as a tariff and the world price for that good. According to the graph shown,if the economy is operating in autarky and decides to open trade with a tariff,the impact on domestic demand is they will:

Question

This graph demonstrates the domestic demand and supply for a good,as well as a tariff and the world price for that good.  According to the graph shown,if the economy is operating in autarky and decides to open trade with a tariff,the impact on domestic demand is they will:

Quizplus · Accepted Answer

In autarky, the domestic demand is at 815 units, which is represented by point A on the graph. When the economy opens trade with a tariff, the world price of the good becomes irrelevant as the tariff creates a new domestic price of Ptariff. The new domestic price is higher than the world price, which reduces the quantity demanded from 1500 to 1150 units (point E on the graph). Therefore, the correct answer is C, which states that the economy will increase consumption from 815 units to 1150 units.

This Graph Demonstrates the Domestic Demand and Supply for a Good,as