Suppose that there is no home production of a good (imports supply all home demand). If the home country then applies a tariff to this good exported by a foreign monopoly, the increase in the equilibrium home price is ________ the tariff applied.

Question

Quizplus · Accepted Answer

When a tariff is applied to a good supplied entirely by imports from a foreign monopoly, the increase in the home price is typically less than the tariff. This is because the foreign monopoly, seeking to maximize profits, will absorb part of the tariff in the form of reduced profit margins to maintain its market share, rather than passing the full cost of the tariff onto consumers.

Suppose That There Is No Home Production of a Good