CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

The introduction of a tariff on widgets reduces ______.

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
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