CFA Practice Question

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CFA Practice Question

Refer to the graph below. Suppose the initial supply and demand curves are S1 and D1 but then a tariff is imposed. The tariff will cause ______

A. S1 to shift to S0.
B. S1 to shift to S2.
C. D1 to shift to D2.
D. D1 to shift to D0.
Correct Answer: A

The tariff means that foreign producers will now supply the same quantity of imports only if they receive a price that is higher by the amount of the tariff. As a result, the supply curve for imports must shift up.

User Contributed Comments 1

User Comment
mikus Tariff is imposed on importers not foreign producers. hence, a tariff will result in higher price of imports which will cause a shift in supply curve from S1 to S0. Also, since the price of imports is now higher, quantity of imports will decrease which will cause a shift in demand curve from D1 to D0. Thoughts?
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