Question

Country X is a major buyer of Country Y’s grains. Assume Country X’s government announced an increase in taxes on its imports of Country Y’s grains effective next month.

How will this news likely affect consumers’ demand for grains in Country X?

A. It will increase now because the tax on imported grains will increase the future price of grains.
B. It will decrease now because the tax on imported grains will increase the future price of grains.
C. It will not change now because the tax on imported grains will increase the future price of grains.
D. It will increase now because the tax on imported grains will increase the current price of grains.
E. It will decrease now because the tax on imported grains will increase the current price of grains.

Answer 1

A. It will increase now because the tax on imported grains will increase the future price of grains.

Step-by-step explanation:

Base on the scenario been described in the question, since country X does import major grains from country Y and it plans on increasing the tax on the grains been imported from country Y, it will increase the demand since the grains are not be produced locally and the consumers know that. This will make the also affect the future price as the tax is been increase by country X.

Answer 2

A) It will increase now because the tax on imported grains will increase the future price of grains.

Step-by-step explanation:

Consumer expectations can shift the demand curve to the left or to the right. If consumers believe that the price of a good will increase in the future, the demand curve will shift to the right increasing the quantity demanded at every price level. This happens because consumers expect, or know in this case, that the price for the goods will increase in the future, so they will stock themselves with as much as they can before the price increases. E.g. you expect the price of cars to increase because of a new tax, so you might purchase a new car immediately instead of waiting 6 more months.