True or False:
The imposition of an import tariff by a large country can cause an increase in the country’s welfare.
When demand increases for a good subject to a quota the price would stay the same but imports would increase.
Is true or false?why?
Import tariff doesn’t give welfare to the domestic consumers, since they get products at higher price; import tariff gives welfare to the domestic suppliers, since they can increase their producer surplus. Although there are positive and negative effects of import tariff, the net effect might be positive if the tariff is small.
Quota is the limit of importing. If it is crossed due to higher demand, the price would be much higher because of protecting the domestic suppliers. Therefore, the increasing import by keeping the same price is not possible.
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