Question

Suppose that a country requires special inspections on all imported food but it exempts domestic production from similar inspection. What effect would this have on imports, domestic production, prices, and quantity consumed?

Answer 1

If the imported food in the country requires special inspections then amount of imports in the country will reduce and reduction in the amount of imports will reduce overall supply of the good in the domestic nation. Domestic production will increase because demand will be met more by domestic production rather than imports. Since decline of imports in the economy also creates lack of competition for the domestic producers and thus they will have an incentive to increase increase their prices which will reduce quantity consumed because there is negative relationship between price and quantity consumed.