Question

Suppose that the U.S. government imposes a 20% tariff to protect U.S. clothing manufacturers adversely affected by the expiration of the μltifibre Agreement. Compared with a free-trade situation, the price of clothing will:

a. Increase
b. Decrease
c. Remain unchanged
d. Cannot be determined from the information provided

Answer 1

a. Increase. The imposition of a 20% tariff by the U.S. government will increase the price of clothing compared to a free-trade situation.

Step-by-step explanation:

In this case, the imposition of a 20% tariff by the U.S. government will increase the price of clothing compared to a free-trade situation.

A tariff is a tax imposed on imported goods, and it is typically passed on to consumers in the form of higher prices. By imposing a 20% tariff, the price of clothing will increase by 20%, making it more expensive for consumers to purchase.

This can be seen in the example provided, where a $10 tariff on garments from Bangladesh raises prices by exactly $10 along the supply curve. As a result, consumers will face higher prices for clothing.