Amara manages a Nigerian furniture business that buys imported machinery. She receives a message that a new trade agreement will remove the import tax on th...
Question 1 Report
Amara manages a Nigerian furniture business that buys imported machinery. She receives a message that a new trade agreement will remove the import tax on the machinery next year. She is deciding whether to delay the purchase.
(a) Identify the tax that is expected to be removed. [1]
(b) Explain one likely effect of removing this tax on the business's production costs. [2]
(c) Which one decision could Amara make if she expects the machinery to become cheaper next year? [1]
Answer Details
(a) The tax expected to be removed is an import tariff, also called import duty. [1]
(b) Without the tariff, the machinery will cost less to import. This reduces the business’s capital cost, and potentially its production costs, which can increase profit if selling prices do not fall by the same amount. [2]
(c) Amara could delay buying the machinery until next year, when she expects it to be cheaper. [1]
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