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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Explain how a tariff reduction causes an Increase in the equilibrium quantity of imports and a decrease in the equilibrium price. Hint: Consider the Work It Out “Effects of Trade Barriers.”

To determine

The way Tariff reduction leads to a decrease in the equilibrium price and an increase in the equilibrium quantity of imports is to be determined.

Explanation

As a tariff isdefined as a tax which is imposed by the government on the goods and services that are imported from some other country. It leads to an increase in the price of those goods and services and thus makes those good and services less attractive and makes the imports of goods and services less desirable by the consumers.

So, this is just the reverse or we could say opposite of the work it out feature. As if the tariff the reduced, it will lead to a decrease in the cost of production. Which will be shown by a rightward or we can say a downward shift in the supply curve.

As the tariff is reduced now more quantity will be demanded as the rates are reduced as te cost of production will reduce. So the equilibrium quantity will increase and the equilibrium price will decrease.

Concept

Tariff: is defined as a tax which is imposed by the government on the goods and services that are imported from some other country. It leads to an increase in the price of those goods and services and thus makes those good and services less attractive and makes the imports of goods and services less desirable by the consumers.

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