Gce Model Questions Vol1 2018 Economics Question 26

Practice objective / multiple choice question 26 from the 2018 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 26 GCE_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

A small open economy imports a good. The world price of the good is $10 per unit. The government imposes a specific tariff of $2 per unit. Domestic demand is \(Q_d = 200 - 10P\) and domestic supply is \(Q_s = 20 + 5P\), where \(P\) is the domestic price inclusive of the tariff. (i) Determine the quantity imported before the tariff. (ii) Determine the quantity imported after the tariff. (iii) Calculate the change in consumer surplus caused by the tariff. (iv) State whether the terms of trade improve, deteriorate or are unchanged.

Answer Options

A. Imports increase from 30 to 40 units; consumer surplus falls by $180; terms of trade unchanged.
B. Imports fall from 30 to 5 units; consumer surplus falls by $150; terms of trade deteriorate.
C. Imports fall from 30 to 0 units; consumer surplus falls by $200; terms of trade improve.
Correct Answer D. Imports fall from 30 to 0 units; consumer surplus falls by $180; terms of trade deteriorate.
Correct Answer
D
Correct Option:
Imports fall from 30 to 0 units; consumer surplus falls by $180; terms of trade deteriorate.

About This Question

This is Gce Model Questions Vol1 2018 Economics Question 26. It is one of the objective questions from the 2018 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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