If a nation fitting the criteria for the large nation model imposes an import tariff ?
Correct answer: C. The domestic price of the product will increase by less than the tariff
- A. the domestic price of the product will increase by more than the tariff itself
- B. The domestic price of the product will increase by the same amount as the tariff
- C. The domestic price of the product will increase by less than the tariff
- D. None of the above
Explanation
For a large country, the tariff reduces its import demand and can force foreign exporters to lower their price. Consequently, the domestic price rises by less than the full tariff because part of the tariff is absorbed by foreign producers.
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