Question

Honduras is an importer of goose-down pillows. The world price of these pillows is $50. Honduras imposes a $7 tariff on pillows. Honduras is a price-taker in the pillow market. As a result of the tariff, the price of goose-down pillows in Honduras:________.

a. remains at $50 and the quantity of goose-down pillows purchased in Honduras decreases.
b. increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases.
c. increases to a new price between $50 and $57 and the quantity of goose-down pillows purchased in Honduras decreases.
d. increases to a new price above $57 and the quantity of goose-down pillows purchased in Honduras remains the same.

Answer 1

b. increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases.

Step-by-step explanation:

A tarrif is defined as the tax that government places on goods that are imported into a country.

The effect on imports is to increase the price of the goods .

If Honduras imposes a tarrif of $7 on pillows the new price will be 50 + 7= $57

As price increases according to the law of demand, there will be a fall in demand of pillows. Customers will look for cheaper alternatives.