Chile is an importer of computer chips, taking the world price of $12 per chip as...
Chile is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Chile imposes a $7 tariff on chips. Which of the following outcomes is possible?
a ThepriceofchipsinChileincreasesto$19;thequantityofChilean- produced chips decreases; and the quantity of chips imported by Chile decreases.
b ThepriceofchipsinChileincreasesto$16;thequantityofChilean- produced chips increases; and the quantity of chips imported by Chile decreases.
c The price of chips in Chile increases to $19; the quantity of Chilean- produced chips increases; and the quantity of chips imported by Chile decreases.
d ThepriceofchipsinChileincreasesto$16;thequantityofChilean- produced chips increases; and the quantity of chips imported by Chile does not change.
Homework Answers
Since we assume that Chile is not large enough to influence the price of the world, the price for Chileans would be 12+7=$19. Since the price of the chips is higher now, the demand for the chip will fall resulting in lesser demand for international market chips. Now, for domestic makers, an increase in price means more supply, thus the correct option should be C.
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