Tariffs Reduce Import Expenditure When Demand is Elastic

Steps:

• Impose tariff: domestic import price rises by tariff amount (assuming small country for simplicity; large country similar in sign).
• Quantity of imports falls proportionally to price elasticity of demand (η).
• Import expenditure = domestic price × quantity imported.
• Change in expenditure ≈ %Δprice × (1 - η); reduces if η > 1.

Why A is correct:

• Elastic demand (η > 1) means %Δquantity < -%Δprice, so price × quantity falls (total revenue test: sellers receive less when demand elastic and price rises).

Why the others are wrong:

• B: Inelastic demand (η < 1) means %Δquantity > -%Δprice (smaller drop), so expenditure rises.
• C: Low supply elasticity affects world price fall but doesn't change the demand-side condition for domestic expenditure reduction.
• D: High supply elasticity approximates small country (fixed world price), but reduction still requires elastic demand.

Final answer: A