The Diagram Below Shows the Demand Curve (D) Facing a Foreign

question 27

Multiple Choice

The diagram below shows the demand curve (D) facing a foreign monopoly
Supplier of a good to home country I, the ssociated marginal revenue curve
(MR) , and the foreign monopolist's marginal cost curve (MC) , which equals the Average cost curve (AC) . If country I places a tariff of the amount T on the Import of the foreign firm's product, the MC curve shifts vertically upward by the Amount of the tariff to (MC + T) , which is also (AC + T) . Given this situation,Which one of the following statements is TRUE?

• A) The price of the product when there is no tariff is P₂.
• B) The imposition of the tariff must lead to a net decrease in welfare in country I.
• C) The imposition of the tariff leads to a net increase in welfare in country I if Area C₁C₂FG exceeds area P₁P₂AB.
• D) The imposition of the tariff leads to a net decrease in welfare in country I if Area P₁P₂AB exceeds area C₁C₂HJ.

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Definitions:

Potholes

Circular holes in the bedrock of a riverbed or a roadway, formed by the abrasion of small stones and sediment whirled around by water.

Swirl

The movement of a fluid in a twisted or spiraling pattern, often occurring in natural systems like air currents and water bodies or in engineered applications.

Sediments

Particles of rock, minerals, or organic matter that have been transported and deposited by wind, water, or ice.

Suspended Load

Fine particles, generally clay and silt, that are carried suspended in moving water.