Question

When the production of a commodity does NOT utilize imported inputs, the effective tariff rate on the commodity:

a) Increases
b) Decreases
c) Remains the same
d) Fluctuates based on demand

Answer 1

A tariff reduction on imported flat screen televisions is likely to lower the equilibrium price and increase the equilibrium quantity in the market, as suppliers can offer the product at lower prices and consumers have an increased demand for it.The correct answer is option A.

Step-by-step explanation:

When considering the impact of a tariff reduction on imported goods, such as flat screen televisions, a four-step analysis can be used to determine the changes in the equilibrium price and quantity. Here's how the process might unfold:

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• Step 1: Initial tariffs on flat screen TVs make them more expensive to import, leading to a higher market price for these goods.
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• Step 2: A reduction in the tariff decreases the cost for importers to bring flat screen TVs into the domestic market.
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• Step 3: As a result of the reduced cost, the supply of flat screen TVs in the domestic market increases, leading to a downward pressure on the market price.
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• Step 4: With the lower prices, consumers are more likely to purchase flat screen TVs, leading to an increase in quantity demanded. Therefore, the market moves to a new equilibrium with a lower price and higher quantity sold.

Overall, the reduction in tariffs tends to lower the equilibrium price and increase the equilibrium quantity of flat screen TVs in the market.The correct answer is option A.