Refer to the information provided in Figure 33.4 below to answer the question(s) that follow. Figure 33.4
-Refer to Figure 33.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a tariff is imposed the price is $15. With the tariff domestic production is
A) 100.
B) 150.
C) 200.
D) 300.

Question

Refer to the information provided in Figure 33.4 below to answer the question(s) that follow.  Figure 33.4
-Refer to Figure 33.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a tariff is imposed the price is $15. With the tariff domestic production is
A) 100. 
B) 150. 
C) 200. 
D) 300.

Quizplus · Accepted Answer

With the tariff, the domestic price increases to $15, which is still lower than the initial domestic price of $20. This creates an incentive for domestic producers to increase production. The increase in domestic production will occur until the domestic price falls to the world price plus the amount of the tariff, which is $10 + $5 = $15. At a price of $15, domestic production is 150 (point C in the graph).

Refer to the Information Provided in Figure 33