The figure below shows the demand (D) and supply (S) curves of a good produced domestically in an economy as well as traded in the international market.Figure 21.1
In the figure,
P 1 : Price of the good in the international market.P 2 : Price of the good in the domestic market after the imposition of tariff by the government.P 3 : No-trade price of the good in the domestic market.
-Which of the following would result from a tariff?

Question

The figure below shows the demand (D) and supply (S) curves of a good produced domestically in an economy as well as traded in the international market.Figure 21.1
In the figure,
P 1 : Price of the good in the international market.P 2 : Price of the good in the domestic market after the imposition of tariff by the government.P 3 : No-trade price of the good in the domestic market. 
-Which of the following would result from a tariff?

Quizplus · Accepted Answer

Imposition of a tariff will increase the domestic price of the good, reducing imports and increasing domestic production to meet the demand. As a result, domestic firms will increase their production to capture the market share, leading to an increase in domestic production. The other options do not necessarily follow from the imposition of a tariff. A tariff may lead to a reduction in international trade, which could cause a decrease in government budget deficit. Nonetheless, it depends on various other factors, such as the size of the tariff and elasticity of supply and demand of the good.

The Figure Below Shows the Demand (D) and Supply (S)