When a country that imports a particular good imposes a tariff on that good, which of the following is most likely to occur?

• A. The domestic price of the imported good increases, and the quantity imported decreases.
• B. The domestic price of the imported good increases, but the quantity imported increases as well.
• C. The domestic price of the imported good decreases, and the quantity imported increases.
• D. The domestic price and quantity imported remain unchanged.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a tariff is — it is a tax imposed by a country on imported goods, which effectively raises the cost of those goods for domestic consumers.
2. Step 2: Recognize that when a tariff is imposed, the supply curve of the imported good shifts upward by the amount of the tariff, making the imported good more expensive in the domestic market.
3. Step 3: Analyze the effect on the domestic price — since the imported good is now more expensive due to the tariff, the domestic price of the imported good increases.
4. Step 4: Consider the effect on quantity imported — as the price of the imported good rises, the quantity demanded for that good typically decreases, leading to a reduction in the quantity imported.
5. Step 5: Conclude that the most likely outcome is an increase in the domestic price of the imported good and a decrease in the quantity imported, reflecting the standard economic effect of a tariff.