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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

Which of the following is the most direct benefit to consumers in an economy that lowers its import tariffs as part of globalisation?

Consumers gain lower prices and wider choice because cutting tariffs increases foreign competition and import availability. It does not guarantee jobs in every industry, it normally raises imports, and it has no assured permanent effect on the balance of payments.

  1. ALower prices and wider product choice due to greater foreign competitionCorrect
  2. BHigher domestic prices because foreign firms add transport costs
  3. CGuaranteed protection of jobs in all domestic industries
  4. DA fall in the volume of imports consumed
  5. A permanent improvement in the balance of payments

Explanation

Removing tariffs exposes domestic firms to foreign competition, which pushes prices down and widens the range of goods available. Protection of all jobs is not guaranteed, imports usually rise, and the balance of payments effect is uncertain.

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