An economy produces two goods (X and Y) with two factors of production (K and L), where X is labour-intensive and Y is capital-intensive good. If the factor intensities of production of the goods are different at any factor price range and are non–reversible, then under the assumption of constant returns to scale, an imposition of a tariff by the home country on Y, which is importable for the home country, gives rise to
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Trade policy: tariffs, quotas and protection has come up 63 times in 6 exams since 2010.
This question is on Tariffs: welfare effects, optimum tariff and incidence, part of Trade policy: tariffs, quotas and protection in International Economics.
What a tariff does to prices, output, revenue and welfare in small and large countries.
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Question from the JNU SIS 2019 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.