Which of the following statements about a tariff is true?

• A. A tariff has no effect on consumer surplus in the importing country.
• B. A tariff increases the domestic price of the imported good.
• C. A tariff eliminates all imports of the taxed good.
• D. A tariff always leads to a decrease in government revenue.

Answer: (B)

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 typically raises the price of those goods in the domestic market.
2. Step 2: Analyze the effect of a tariff on consumer surplus — since the tariff raises the price of imported goods, consumers usually pay more, which reduces consumer surplus. Therefore, the statement that a tariff has no effect on consumer surplus is false.
3. Step 3: Consider the impact on domestic prices — because the tariff increases the cost of imported goods, domestic prices for those goods tend to rise, making the statement that a tariff increases the domestic price true.
4. Step 4: Evaluate whether a tariff eliminates all imports — tariffs generally make imports more expensive but do not necessarily eliminate all imports unless the tariff is prohibitively high. So, the statement that a tariff eliminates all imports is not always true.
5. Step 5: Examine government revenue effects — tariffs generate revenue for the government from the tax on imports, so a tariff does not always lead to a decrease in government revenue; it often increases it.