If an import-competing firm is imperfectly competitive, than under free trade an export tariff will ________ domestic market price, ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare.
A) increase; have no effect on; decrease; increase; decrease.
B) decrease; decrease; increase; decrease; have no effect on
C) increase; have no effect on; decrease; increase; decrease
D) decrease; increase; decrease; increase; decrease
E) have no effect on; have no effect on; decrease; increase; decrease

Question

Quizplus · Accepted Answer

An import-competing firm is a domestic firm that produces goods that compete with imported goods. Under free trade, the domestic market price of the good is equal to the world price. An export tariff is a tax on goods that are exported. If an import-competing firm is imperfectly competitive, then it has some market power and can set a price above the marginal cost of production. An export tariff will increase the domestic market price of the good, which will increase producer surplus and government revenue. However, it will also decrease consumer surplus and overall domestic national welfare.

If an Import-Competing Firm Is Imperfectly Competitive, Than Under Free