Which of the following statements is true about tariffs and trade restrictions?

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

Answer: (B)

Verified step by step guidance

1. Understand the role of tariffs: Tariffs are taxes imposed on imported goods, which typically increase the cost of these goods in the domestic market.
2. Analyze the effect of tariffs on prices: Since tariffs raise the cost of imported goods, the price of these goods tends to increase, making them less competitive compared to domestic products.
3. Consider the impact on domestic producers: Higher prices on imports can benefit domestic producers by reducing foreign competition, potentially increasing their market share.
4. Evaluate the effect on government revenue: Tariffs generate revenue for the government because they are a form of tax on imports, so tariffs are designed to increase, not decrease, government revenue.
5. Assess the impact on consumer surplus: Since tariffs raise prices on imported goods, consumers generally face higher prices, which tends to decrease consumer surplus rather than increase it.