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Chapter 3: Q 44. (page 79)

Use the four-step process to analyze the impact

of a reduction in tariffs on imports of iPods on the

equilibrium price and quantity of Sony Walkman-type products.

Short Answer

Expert verified

The demand for iPods increases.

Step by step solution

01

Step 1.Terrifs.

A tariff is a type of tax levied by a country on an imported good at the border. As a protectionist tool, a tariff increases the prices of imports.

02

Step 2.4 step approach.

1. Reduction in tariff on imports of iPods affect the demand for sony walkman and iPods both.

2. as the tariffs are less now so the seller import more iPods at decreased prices.

3. Because of this the price of iPods decreases and the demand increases because of decreased price.

4. Demand for sony walkman decreases because of the price decrease of substitute goods which is the ipod.

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Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.
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