Refer to the Graph Shown for a Small Country That

question 39

Multiple Choice

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit.Starting from a free trade equilibrium, a tariff in the amount of $2 per unit would be expected to cause domestic production to:

• A)increase from 2,400 to 7,400.
• B)increase from 2,400 to 3,600.
• C)decrease from 4,800 to 3,600.
• D)decrease from 7,400 to 6,100.

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Definitions:

Disposable Income

Funding available to households for their spending and saving plans post income tax cuts.

Savings

The portion of income that is not spent on consumption but set aside for future use, often in a bank account or investment vehicle.

Consumption

The use of goods and services by households or individuals, constituting one of the primary components of the economy alongside investment, government spending, and net exports.

Savings

The portion of income not spent on consumption of goods and services but kept aside, usually in deposit accounts or investments.