Question

Imagine that the European Union places a tariff on clocks, the European Union's

A. terms of trade will get worse and quantity of imports will increase.
B. terms of trade will get better and quantity of imports will increase.
C. terms of trade will get better and quantity of imports will decline.
D. terms of trade will get worse and quantity of imports will decline.

Answer 1

The European Union's terms of trade will get worse and the quantity of imports will decline.

Step-by-step explanation:

The correct answer is D. The European Union's terms of trade will get worse and the quantity of imports will decline.

When the European Union places a tariff on clocks, it creates a barrier to trade. This makes clocks more expensive for consumers within the European Union, which reduces the demand for imported clocks and encourages them to buy domestically produced clocks. As a result, the quantity of imports of clocks will decline.

The terms of trade refer to the ratio at which a country can trade its exports for its imports. When the European Union places a tariff on clocks, it reduces its capability to trade its exports (other goods and services) for imports of clocks, making its terms of trade worse.