CFA Level I · CFA Level I Exam · International Trade
A government wants to protect a domestic industry from foreign competition while collecting revenue from the protection. Which of the following trade restrictions is most likely to achieve both aims?
An import tariff best meets both aims. It raises the domestic price, which protects local producers, and the importing government collects the tariff revenue. A voluntary export restraint gives the rents to foreign exporters, and an export subsidy costs the government money.
- AA voluntary export restraint
- BAn import tariffCorrect
- CAn export subsidy
Explanation
An import tariff protects domestic producers by raising the domestic price and generates revenue for the importing government. A voluntary export restraint transfers the rents to foreign exporters, so the importing government gets no revenue. An export subsidy costs the government money.
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