CFA Level I · CFA Level I Exam · International Trade
A country imposes a tariff on imported textiles to protect domestic textile jobs. Compared with free trade, the tariff will most likely:
The tariff will most likely raise domestic prices and reduce consumer surplus. Domestic producers gain and the government earns revenue, but consumers pay more and buy less, and imports decline compared with free trade.
- Araise domestic prices and reduce consumer surplusCorrect
- Blower domestic prices and raise imports
- Craise world prices and reduce producer surplus
Explanation
A tariff raises the domestic price above the world price, so consumers buy less and lose surplus, while domestic producers gain and the government collects revenue. Imports fall, not rise, so the other options are wrong.
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