Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium price without trade, thus reducing the gains from trade.

Question

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Tariffs increase the price of imported goods, shifting the price closer to the equilibrium price without trade. This results in a decrease in the quantity of goods consumed and a reduction in consumer surplus. The loss in surplus by consumers and producers is known as deadweight loss. Therefore, tariffs do cause deadweight loss.

Tariffs Cause Deadweight Loss Because They Move the Price of an Imported