Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market.In addition,assume that the world price in this market is $40 per unit.
-Refer to Figure 9-22.Suppose the government imposes a tariff of $20 per unit.Relative to the free-trade outcome,the imposition of the tariff
A)decreases imports of the good by 300 units and increases domestic production of the good by 300 units.
B)decreases imports of the good by 300 units and increases domestic production of the good by 600 units.
C)decreases imports of the good by 600 units and increases domestic production of the good by 300 units.
D)decreases imports of the good by 600 units and increases domestic production of the good by 600 units.

Question

Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market.In addition,assume that the world price in this market is $40 per unit. 
-Refer to Figure 9-22.Suppose the government imposes a tariff of $20 per unit.Relative to the free-trade outcome,the imposition of the tariff
A)decreases imports of the good by 300 units and increases domestic production of the good by 300 units. 
B)decreases imports of the good by 300 units and increases domestic production of the good by 600 units. 
C)decreases imports of the good by 600 units and increases domestic production of the good by 300 units. 
D)decreases imports of the good by 600 units and increases domestic production of the good by 600 units.

Quizplus · Accepted Answer

With the imposition of the $20 tariff, the new domestic price will be $60 ($40 + $20). At this price, domestic production will increase from 1,200 units to 1,500 units (a shift along the supply curve), while domestic demand will decrease from 2,400 units to 2,100 units (a shift along the demand curve). Imports will decrease from 1,200 units to 600 units (the difference between domestic demand and domestic production), resulting in a decrease of imports by 600 units and an increase in domestic production by 300 units. Therefore, Choice C) is the correct answer.

Figure 9-22 The Following Diagram Shows the Domestic Demand and Domestic Supply