Answer to Question #146518 in Microeconomics for Tushar

Question

Suppose that as an part of international trade the government reduces the tariff on imported coffee will it affect the supply and demand for coffee

Answer 1

The reduction in import tarrifs on coffee reduces the cost of importing it. This reduction, reduces total cost of production to suppliers who will eventually reduce their local coffee prices.

Therefore, the tarrif reduction will increase quantity demanded for coffee as tarrifs reduce both the international and the local prices of coffee. Local supply of coffee increases due to reduction in cost of production to suppliers and due to an increase in local quantity demanded as prices fall.