Question

Scenario: Montesia is predominantly a producer and exporter of manufactured goods. However, it imports several agricultural products. Refer to the scenario above. Recently, the government of Montesia imposed a tariff on the import of some cash crops. Which of the following is likely to happen in this case? A. The domestic producers of cash crops will be worse off. B. The domestic consumers of cash crops will be better off. C. The import of cash crops will increase. D. The government's revenue will increase.

Answer 1

Montesia is producer and exporter of manufactured goods. It imports agricultural products, so it imports cash crops. If the Montesia government imposes a tariff on the import of some cash crops. Then, the domestic price of cash crops increases ,this would decrease the import of cash crops. As a result , consumer surplus decreases and producer surplus increases. Therefore, the domestic producers of cash crops will be better off, domestic consumers of cash crops will be worse off , the imports of cash crops will decrease and the government's revenue will increase. Hence, option(D) is correct.