Which of the following statements is true of tariffs on imports?

• A. Tariffs generally increase the domestic price of imported goods.
• B. Tariffs have no effect on domestic producers.
• C. Tariffs always decrease government revenue.
• D. Tariffs eliminate all deadweight loss in the market.

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 tariffs on the price of imported goods. Since tariffs add an extra cost to imports, the domestic price of these goods typically rises by approximately the amount of the tariff.
3. Step 3: Consider the impact on domestic producers. Higher prices for imported goods can make domestic products relatively cheaper or more competitive, often benefiting domestic producers rather than having no effect.
4. Step 4: Examine government revenue implications. Tariffs generate revenue for the government because importers must pay the tax on each unit imported, so tariffs do not always decrease government revenue; they usually increase it.
5. Step 5: Evaluate the effect on deadweight loss. Tariffs create deadweight loss by reducing the quantity of trade below the efficient level, so they do not eliminate deadweight loss; instead, they typically increase it.