CFA Practice Question

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CFA Practice Question

If the primary purpose of a tariff is to completely eliminate the price advantage of foreign competition, it will be expected to raise ______.
A. either a large or a small amount of revenue depending on the magnitude of the tariff imposed
B. an amount of revenue equal to the amount of the tariff multiplied by the volume of exports
C. a relatively small amount of tax revenue
Explanation: Since the volume of imports will either be zero or very small, tax revenues will also be small.

User Contributed Comments 4

User Comment
chuong Completly eliminate foreign competition mean no more import -> no tax revenue.therefore no choice is met.
wollogo I agree, although in reality the last answer does make sense as it will take a while for imports to cease.
h1bvisa import does not cease, but will decrease. After the price advantage is eliminated by tarrifs then amount of imports will be lower, causing a smaller amount of tax revenue.
Rotigga Nice trick question.
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