📚 Learning Guide
Effects of Tariffs on Markets
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How do tariffs typically affect consumer welfare in a domestic market under protectionism?

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Choose the Best Answer

A

They increase consumer surplus by lowering prices.

B

They decrease consumer surplus by raising prices.

C

They have no effect on consumer welfare.

D

They only affect producer surplus.

Understanding the Answer

Let's break down why this is correct

Answer

Tariffs are taxes imposed on imported goods, and they usually make those goods more expensive for consumers. When the government raises tariffs to protect domestic industries, it can lead to higher prices for products that people buy. For example, if a country places a tariff on imported cars, the prices of both imported and domestic cars may rise because consumers have fewer options and less competition. This means that consumers might end up paying more for cars or settling for lower-quality alternatives. Overall, while tariffs aim to support local businesses, they can hurt consumer welfare by reducing choices and increasing costs.

Detailed Explanation

Tariffs make imported goods more expensive. Other options are incorrect because Some might think tariffs lower prices, but they actually raise them; It's a common belief that tariffs don't change anything, but they do affect prices.

Key Concepts

Protectionism
Welfare Effects.
Topic

Effects of Tariffs on Markets

Difficulty

medium level question

Cognitive Level

understand

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