In the General Equilibrium Graph with a Production-Possibilities Frontier (PPF)

question 7

Multiple Choice

In the general equilibrium graph with a production-possibilities frontier (PPF) and consumer indifference curves,

• A) a tariff has the same welfare impact as a subsidy to the import-competing industry (provided domestic production is the same with each alternative instrument).
• B) a tariff reduces both real income and the gains from exchange.
• C) a tariff reduces consumer welfare only if the tariff is a prohibitive tariff (i.e., Eliminates all imports).
• D) protection shifts the PPF outward but reduces consumer welfare.

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Definitions:

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