Question

The following headline appeared in the Economic Times:
"Import duty on crude and refined edible oil up by $5\%$ "
Use a diagram and economic theory to analyse the impact of the statement on the supply of crude and refined edible oil in the domestic market.

Answer 1

When import duty on crude and refined edible oil is up by $5\%$ (other things remaining constant ), its causes a rise in the cost of imports. Accordingly, producers will supply less of crude and refined edible oil at the existing price,or they will sell the same quantity only at a higher price. This implies a backward shift in supply curve or decrease in supply as in figure $S_1$ is the initial supply curve. When government increases import duty ,supply curve shift to the left from $S_1$ to $S_2$