Question

The following graph shows the market for wheat in the European Union (EU). The world price of wheat is $2.00 per bushel, so S World

​ represents the world supply assuming that the EU can trade freely with other countries. The EU has imposed a tariff of $0.50 per bushel on imported wheat.
Given this scenario, what would be the effective price of wheat in the EU market, including the tariff?

A) $1.50 per bushel
B) $2.00 per bushel
C) $2.50 per bushel
D) $3.00 per bushel

Answer 1

The effective price of wheat in the EU market, including the tariff, would be C) $2.50 per bushel.

Step-by-step explanation:

In the given scenario, the world price of wheat is $2.00 per bushel, and the EU has imposed a tariff of $0.50 per bushel on imported wheat. When the tariff is added to the world price, the effective price of wheat in the EU market becomes $2.00 + $0.50 = $2.50 per bushel. This is because the tariff increases the cost of imported wheat to the EU.

The tariff effectively raises the price of imported wheat, making it less competitive compared to domestic wheat. As a result, the effective price of wheat in the EU market, including the tariff, is higher than the world price. This impacts both consumers and producers within the EU, as they face higher prices for wheat due to the imposed tariff.

The imposition of tariffs can have significant implications for trade and market dynamics, influencing consumer choices and domestic production.

So correct option is C) $2.50 per bushel