Suppose That the Small Open Economy (SOE)cannot Produce Consumption Goods

question 62

Multiple Choice

Suppose that the small open economy (SOE) cannot produce consumption goods, but domestic producers can produce investment goods. If a tariff t is imposed by the SOE on imports of goods
From the rest of the world, and the rest of the world imposes a tariff t on exports from the SOE to
The rest of the world, then

• A)exports increase
• B)output increases.
• C)trade increases.
• D)firms will not produce anything.
• E)investment increases.

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Definitions:

Rational

The quality of being based on or in accordance with reason or logic.

Indifference Curves

A graph representing different bundles of goods between which a consumer is indifferent, showing equal levels of utility.

Preference Map

A relationship between two variables, X and Y, in which a decrease in X is associated with a decrease in Y, and an increase in X is associated with an increase in Y.

Indifference Curve

a graph showing different combinations of two goods that give a consumer equal satisfaction and utility.