Gce Model Questions Vol1 2023 Economics Question 9

Practice objective / multiple choice question 9 from the 2023 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2023 Economics Objective / Multiple Choice Medium Difficulty
Question 9 GCE_MODEL_QUESTIONS_VOL1 • 2023 • ECONOMICS • objective

Country X's export price index is 120 (base 100) and its import price index is 150. The government imposes a 10 % ad valorem tariff on all imports, and quantities are assumed unchanged. (a) Calculate the new terms of trade after the tariff. (b) By what percentage does the terms of trade change? (c) Briefly state whether the tariff improves or worsens the country's welfare.

Answer Options

A. New TOT ≈ 0.66; terms of trade fall by about 12.5 %; welfare improves
Correct Answer B. New TOT ≈ 0.73; terms of trade fall by about 9.1 %; welfare worsens
C. New TOT ≈ 0.80; terms of trade fall by about 6.7 %; welfare worsens
D. New TOT ≈ 0.73; terms of trade rise by about 4.2 %; welfare worsens
Correct Answer
B
Correct Option:
New TOT ≈ 0.73; terms of trade fall by about 9.1 %; welfare worsens

About This Question

This is Gce Model Questions Vol1 2023 Economics Question 9. It is one of the objective questions from the 2023 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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