32. If Country X increases the tariff on imported coffee, what will be the impact on the import and the production of coffee in Country X?
Answer: B
The amount of coffee imported to Country X will decrease, and the production of coffee in Country X will increase.
Increasing the tariff on imported coffee makes imported coffee more expensive, leading to a decrease in the quantity imported. Simultaneously, domestic producers are incentivized to increase production to meet the demand that is no longer satisfied by imports.
A) The amount of coffee imported to Country X and the production of coffee in Country X will both decrease
This option is incorrect because while the import of coffee will decrease due to higher tariffs, the domestic production is likely to increase as local producers respond to reduced competition from imports.
B) The amount of coffee imported to Country X will decrease, and the production of coffee in the Country X will increase
This option accurately reflects the economic principles at play. When tariffs are imposed, imports become more expensive, resulting in decreased imports. At the same time, domestic producers are encouraged to boost their output to fill the gap left by fewer imports.
C) The amount of coffee imported to Country X will increase, and the production of coffee in Country X will decrease
This option is incorrect because a higher tariff would not lead to an increase in imports. Instead, it would raise the cost of imported coffee, causing a decrease in imports, while domestically produced coffee would likely increase.
D) The amount of coffee imported to Country X and the production of coffee in Country X will both increase
This option is incorrect because an increase in tariffs would not lead to an increase in imports. The higher cost associated with tariffs would reduce imports, and there is no incentive for domestic production to increase in response to more expensive imports.
Conclusion
The rationale for the correct answer is grounded in basic economic principles regarding tariffs and their effects on trade. As the tariff raises the cost of imports, consumption of imported coffee decreases, prompting local producers to increase their production to meet domestic demand. All other options misinterpret the relationship between tariffs, imports, and domestic production, failing to acknowledge the protective nature of tariffs on local industries.