Final answer:
A tax on an imported good is a tariff. Tariffs raise the cost of foreign goods, thus protecting domestic industries. When a tariff is reduced, one can expect the equilibrium price to fall and the equilibrium quantity to rise for that good.
Step-by-step explanation:
A tax on an imported good is known as a tariff.
Understanding Tariffs
Tariffs are taxes on imported goods. Governments use these as a fiscal policy tool for generating revenue and protecting domestic industries. By imposing tariffs, a country can make foreign goods more expensive, thereby giving an edge to domestically produced products.
Effects of Tariff Reduction
Let's consider the example where the U.S. government cuts the tariff on imported flat screen televisions. Using a four-step analysis:
- Determine the initial equilibrium price and quantity for flat screen TVs.
- Recognize that a tariff reduction decreases the cost of imported TVs.
- Predict that as a result, the supply of flat screen TVs will increase, leading to lower prices.
- Finally, assess how this increased supply and reduced price will result in a higher equilibrium quantity, as consumers will likely buy more at lower prices.
Therefore, a reduction in tariffs will generally lead to a decrease in the equilibrium price and an increase in the equilibrium quantity of the imported good.