Honduras is an importer of goose-down pillows.The world price of these pillows is $50.Honduras imposes a $7 tariff on pillows.Honduras is a price-taker in the pillow market.As a result of the tariff,the price of goose-down pillows in Honduras
A)remains at $50 and the quantity of goose-down pillows purchased in Honduras decreases.
B)increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases.
C)increases to a new price between $50 and $57 and the quantity of goose-down pillows purchased in Honduras decreases.
D)increases to a new price above $57 and the quantity of goose-down pillows purchased in Honduras remains the same.

Question

Quizplus · Accepted Answer

When a tariff is imposed, the price of the imported goods increases by the amount of the tariff. Therefore, the price of goose-down pillows in Honduras will increase to $57 ($50 + $7) due to the tariff. As Honduras is a price-taker in the market, it cannot influence the world price of $50. Due to the price increase, the quantity of goose-down pillows purchased in Honduras decreases. Thus, option B is the correct answer.

Honduras Is an Importer of Goose-Down Pillows