The lower the price elasticity of foreign supply of a country's imports:
A)the lower will be the prohibitive tariff imposed by this country.
B)the lower will be tariff revenue of the government of the imposing country.
C)the higher will be the optimum tariff imposed by this country.
D)the higher will be the fluctuation in the availability of the imported goods in this country.

Question

Quizplus · Accepted Answer

The lower the price elasticity of foreign supply of a country's imports, the less the foreign suppliers can respond to a tariff by reducing their price (as they have limited flexibility in their supply). This reduces the risk of a retaliatory tariff from the foreign suppliers. Therefore, the country can set a higher optimum tariff (that maximizes its welfare) without fearing much retaliation.

The Lower the Price Elasticity of Foreign Supply of a Country's