1. If the domestic demand curve in a small country is completely inelastic then

ID: 1115920 • Letter: 1

Question

1. If the domestic demand curve in a small country is completely inelastic then a tariff on imports

a) does not result in any deadweight losses

b) results in a larger reduction in imports as compared to a situation with an elastic domestic demand

c) causes a larger increase in prices compared to a situation with an elastic domestic demand

d) none of the above

2. Free trade

a) Does not reduce anyone’s welfare in the short-run.

b) Results in a decline in the welfare of producers in the exporting sector

c) Will have a positive short-run effect on consumers in the exporting sector.

d) None of the above.

1(d).

Results in deadweight loss, imports are not reduced as demand doesn't change with inelastic demand curve.

Q2:

(a). Free trade adds to gains for everyone.

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