Question

Suppose that, to support domestic employment,

the government imposes a 33.3% tariff on imports

of clothing. Fareeha spends ~8,000 on dresses

each month. Before the tariff, the price of a dress

produced domestically is NOO and the price of a

foreign-made dress is ~300. Use an indifference

curve-budget line analysis to show how imposing

this tariff affects the quantity of dresses she buys

compared to what she would have bought in the

absence of the tariff. Will she buy a relatively higher

number of domestically produced dresses after the

tariff? Why or why not?

Answer 1