Question

Suppose the United States could import footwear from Thailand at the price of $20 per pair or from Mexico at $24 per pair. The domestic price of footwear in the United States is $35. Suppose prior to NAFTA, the U.S. customs imposed a 50% tariff on all footwear entering the country. Would the United States import footwear? If yes, from which country? Why?

Answer 1

Yes, The United states would import footwear from Thailand.

Explanation:

The domestic price of footwaer in the United States is $ 35. The price of footwear is $ 20 in Thailand and $ 24 in Mexico

When the U.S. customs imposed a 50 % tariff on import , the price of footwear will increase as ,

Price of footwear from Thailand = $ 20 + 50 % tariff on $ 20 = $30

Price of footwear from Mexico = $ 24 + 50% tariff on $24 = $ 36

So it is clear from the above , the United States will not import footwear from Mexico as its price is higher than the domestic price in the U.S. due to imposition of tariff. But the U.S. will import footwear from the Thailand as its price is lower than the domestic price in U.S. & to earn revenue from imposition of tarrif.