The reduction in the price of the import commodity that results when a large nation imposes an import tariff is attributed to the ____________ and constitutes a __________ of welfare for the nation.
A)consumption effect of the tariff,loss
B)terms of trade effect of the tariff,loss
C)protective effect,gain
D)terms of trade effect,gain

Question

Quizplus · Accepted Answer

The reduction in price of the import commodity due to the imposition of an import tariff is known as the terms of trade effect of the tariff, and constitutes a gain for the nation. This is because domestic producers are able to sell their products at higher prices, while consumers are still able to access the imported goods at a lower price than before, resulting in a net gain for the nation. Option A is incorrect because the consumption effect of the tariff refers to the reduction in consumption of the imported good due to the increased price, and is not relevant in this context. Option B is incorrect because it implies that the nation experiences a loss as a result of the reduction in the price of the import commodity, which is not true. Option C is incorrect because the protective effect of the tariff refers to the benefits obtained by domestic producers from protection against foreign competition, whereas this question is specifically referring to the effect on consumers and the price of imported goods.

The Reduction in the Price of the Import Commodity That