Final answer:
A tariff reduction leads to an increase in the equilibrium quantity of imports due to lower production costs for imports and increased foreign competition. It also causes a decrease in the equilibrium price by lowering demand for domestic goods and reducing barriers to trade.
Step-by-step explanation:
A tariff reduction causes an increase in the equilibrium quantity of imports and a decrease in the equilibrium price due to several factors. One factor is that the reduction in tariffs leads to lower production costs for imports, which makes imported goods more affordable and encourages higher quantities to be imported. Another factor is that lower tariffs can result in increased foreign competition as other countries become more competitive in the market, leading to a greater supply of imports and lower prices.
Additionally, a reduction in tariffs can lower demand for domestic goods. With lower tariffs, imported goods become cheaper compared to domestic goods, which reduces demand for domestic products. As a result, domestic producers may decrease their prices to remain competitive, leading to a decrease in the equilibrium price.
Lastly, a tariff reduction represents a reduced barrier to trade. When trade barriers are reduced, such as tariffs, it allows for easier flow of goods and services between countries. This can result in an increase in the quantity of imports and a decrease in the equilibrium price as more goods from different countries enter the market.