Beginning with a free trade equilibrium and imposing an import tariff _________ the domestic price of imports leading to monetary transfers and to _______.

Question

Quizplus · Accepted Answer

Imposing an import tariff increases the domestic price of imports because the added cost of the tariff is typically passed on to consumers. This leads to monetary transfers from consumers to the government (in the form of tariff revenue) and to domestic producers (who can now charge higher prices). It also leads to deadweight loss due to reduced efficiency in the market; some transactions that would have occurred in the absence of the tariff (beneficial to both buyers and sellers) no longer happen, leading to a loss of economic welfare.

Beginning with a Free Trade Equilibrium and Imposing an Import