What Happens When Two Countries Apply Tariffs Against Each Other

question 71

Multiple Choice

What happens when two countries apply tariffs against each other in an attempt to capture their terms-of-trade gain?

• A) Both countries lose because the terms-of-trade gain for one country is canceled by the tariff in the other country.
• B) Both countries gain because the terms-of-trade gain for one country is canceled by the tariff in the other country.
• C) Neither country gains nor loses because the terms-of-trade gain for one country is canceled by the tariff in the other country.
• D) The country initially applying the tariff gains because it captures the terms-of-trade gain; the other country neither gains nor loses.

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