Spain is an importer of computer chips, taking the world price of $11 per chip as given. Suppose Spain imposes a $3 tariff on chips. Which of the following outcomes is possible? a. Total surplus in the Spanish chip market increases. b. More foreign-produced chips are sold in Spain. c. Spanish consumers and producers of chips gain. d. The price of chips in Spain increases to $14; the quantity of Spanish-produced chips increases; and the quantity of chips imported by Spain decreases.

Question

03-03-2022
Business

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Spain is an importer of computer chips, taking the world price of $11 per chip as given. Suppose Spain imposes a $3 tariff on chips. Which of the following outcomes is possible? a. Total surplus in the Spanish chip market increases. b. More foreign-produced chips are sold in Spain. c. Spanish consumers and producers of chips gain. d. The price of chips in Spain increases to $14; the quantity of Spanish-produced chips increases; and the quantity of chips imported by Spain decreases.

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ewomazinoade ewomazinoade · Answer 1 · 2022-03-14T09:52:12+01:00

A possible result of imposing a tariff on the import of chips is the price of chips in Spain increases to $14; the quantity of Spanish-produced chips increases; and the quantity of chips imported by Spain decreases.

What is the impact of the tariff on chips?

When a tariff is placed on the import of certain goods and services, it has the following impacts:

It increases the price of the item. The rate of increase in the price of the item depends on the elasticity of demand for the good.

It reduces the quantity imported due to the increased price of importation as a result of the tariff.

It encourages local production of the item.

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