(02.09 MC) Domestic rice farmers are demanding that the government set an import tariff. From an economic perspective, which of the following statements could explain why?
The rice farmers want to reduce demand in the domestic market to ease the burden they experience in production.
The rice farmers want to increase demand in the domestic market to increase their revenues.
The rice farmers expect that helping generate government revenue will lead to more favorable trade deals in the long run.
The rice farmers expect the intervention to reduce foreign rice in the market, which will increase their production, price, and surplus.
The rice farmers assume that the intervention will increase the foreign rice brought into the market and reduce both price and consumer surplus.
The correct answer and explanation is :
The correct answer is:
“The rice farmers expect the intervention to reduce foreign rice in the market, which will increase their production, price, and surplus.”
Explanation:
From an economic perspective, domestic rice farmers favor import tariffs because they want to protect their market from foreign competition. When the government imposes a tariff on imported rice, the cost of foreign rice rises, making it less competitive compared to domestically produced rice. As a result, consumers are more likely to buy locally produced rice, increasing demand for domestic rice.
This shift benefits local farmers in several ways:
- Higher Prices – With fewer foreign competitors in the market, domestic farmers can sell their rice at a higher price, increasing their revenues.
- Increased Production – Since demand for domestic rice rises, farmers are incentivized to grow more rice, boosting overall domestic production.
- Greater Surplus – Higher revenues allow farmers to reinvest in their farms, leading to better production efficiency and increased output over time.
The other answer choices are incorrect because:
- Reducing demand in the domestic market would not benefit farmers. Instead, they want demand to increase.
- Increasing demand for foreign rice contradicts their goal of reducing competition.
- Helping government revenue for trade deals is not a primary concern for farmers. Their main interest is protecting their market.
- Increasing foreign rice in the market would have the opposite effect, lowering prices and hurting local farmers.
Thus, farmers advocate for import tariffs because they help protect their businesses, ensure stable prices, and promote local production.