To encourage the domestic production of soybean oil, the Indian government impos
ID: 1117488 • Letter: T
Question
To encourage the domestic production of soybean oil, the Indian government imposed a 20% tariff on the import of soybean oil. The world price, when the tariff was imposed, was (in terms of the Indian currency, rupees) Rs.1,000 per ton of oil. The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff. Suppose as result of the higher price of soybean oil, new domestic firms enter the market, causing an increase in the demand for Soybeans. Which of the following is the most likely implication of this?
To encourage the domestic production of soybean oil, the Indian government imposed a 20% tariff on the import of soybean oil. The world price, when the tariff was imposed, was (in terms of the Indian currency, rupees) Rs.1,000 per ton of oil The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff Supply Suppose as result of the higher price of soybean oil, new domestic firms enter the market, causing an increase in the demand for Soybeans. Which of the following is the most likely implication of this? A. The tariff revenue earned by the Indian government will decline B. The deadweight loss will increase C. The demand for soybean oil will increase D. The Indian consumers will lose more surplus E. The foreign producers will benefit as they can increase exports to India 1.200 1,000 Demand 11 :18 2 Quantity of soybean oil (millions of tons)Explanation / Answer
Answer
Option A
the entry of new firm shifts supplies curve to the right which will decrease import, deadweight and tax revenue because of the domestic price decreases and domestic quantity of supply increases at the new equilibrium.
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