- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 6. International Trade
- Subject 2. International Trade Restrictions and Agreements
CFA Practice Question
The introduction of a tariff on widgets reduces ______.
B. widget exports but not widget imports
C. widget imports but not widget exports
A. both widget imports and widget exports
B. widget exports but not widget imports
C. widget imports but not widget exports
Correct Answer: C
Since a tariff is a tax on imports, it will increase the price and reduce the volume of imported widgets.
User Contributed Comments 7
| User | Comment |
|---|---|
| timspear | Which would cause local widget producers to sell them locally rather than export them? |
| haarlemmer | Higher domestical price, I think |
| rt2007 | tariff is only on imports - so it will not affect exports at all. |
| ehc0791 | The logic of timspear is reasonable. A is deeper thinking than C |
| bmeisner | Timspear's logic is only relevant in the short run and I believe the analysis is correct. This question doesn't state whether it refers to short run or long run effects. However for long run effects, to me A is still the best choice because if you consider the effect of the tariff on international prices it should lower prices because of decreased international quantity demanded. This means the country's exporters would lower their quantity supplied (exports). |
| Shaan23 | You guys are making this way to complicated. There is no long run or short run. How can there be exports when the demand locally is greater then the local supply? There is NO exports at all. |
| ibrahim18 | Agree with Shaan23. Nice thinking |