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

• A. Tariffs generally increase the domestic price of imported goods.
• B. Tariffs always lead to a decrease in government revenue.
• C. Tariffs have no effect on consumer surplus.
• D. Tariffs eliminate all foreign competition in domestic markets.

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 raises 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 importers must pay the tariff, they typically pass this cost onto consumers, causing the domestic price of imported goods to increase.
3. Step 3: Consider the impact of tariffs on government revenue — tariffs generate revenue for the government because importers pay the tax, so tariffs do not always decrease government revenue; in fact, they usually increase it.
4. Step 4: Evaluate the effect of tariffs on consumer surplus — because tariffs raise prices, consumers generally pay more and buy less, which reduces consumer surplus; therefore, tariffs do affect consumer surplus.
5. Step 5: Assess whether tariffs eliminate all foreign competition — tariffs make imported goods more expensive but do not completely eliminate foreign competition unless the tariff is prohibitively high; thus, tariffs do not necessarily eliminate all foreign competition.