Which of the following best describes a protective tariff?

• A. A quota that limits the quantity of goods that can be imported.
• B. A subsidy given to domestic producers to lower the price of their goods.
• C. A tax imposed on imported goods to shield domestic industries from foreign competition.
• D. A tax imposed on exported goods to encourage domestic production.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of a tariff in microeconomics. A tariff is a tax imposed by a government on goods imported from other countries.
2. Step 2: Recognize the purpose of a protective tariff. It is designed to protect domestic industries by making imported goods more expensive, thereby reducing foreign competition.
3. Step 3: Differentiate a protective tariff from other trade policies such as quotas (which limit quantity), subsidies (which lower domestic production costs), and export taxes (which affect goods leaving the country).
4. Step 4: Identify that a protective tariff specifically refers to a tax on imported goods, not on exports or a direct limit on quantity.
5. Step 5: Conclude that the best description of a protective tariff is 'A tax imposed on imported goods to shield domestic industries from foreign competition.'