Which of the following is true of tariffs on imports?

• A. Tariffs increase the price of imported goods, making them less competitive compared to domestic products.
• B. Tariffs have no effect on government revenue.
• C. Tariffs decrease the price of imported goods.
• D. Tariffs always lead to an increase in consumer surplus.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a tariff is — a tariff is a tax imposed by a government on imported goods, which increases the cost of those goods when they enter the domestic market.
2. Step 2: Analyze the effect of a tariff on the price of imported goods — since the tariff adds an extra cost, the price of imported goods rises, making them more expensive for consumers.
3. Step 3: Consider the impact on competitiveness — because imported goods become more expensive, domestic products become relatively cheaper and more attractive to consumers, increasing their competitiveness.
4. Step 4: Evaluate the effect on government revenue — tariffs generate revenue for the government because importers must pay the tax on each unit imported.
5. Step 5: Reflect on consumer surplus — since tariffs raise prices on imports, consumers generally pay more, which tends to decrease consumer surplus rather than increase it.