The protective effect of a tariff occurs to the extent that less efficient domestic production is substituted for more efficient foreign production.

Question

Quizplus · Accepted Answer

This statement is true, as a tariff on foreign gasoline would make it more expensive for consumers, leading them to buy more domestically produced gasoline. However, domestic production may be less efficient than foreign production, meaning that the protective effect of the tariff only occurs to the extent that the increased domestic production can compete with the more efficient foreign production.

The Protective Effect of a Tariff Occurs to the Extent