Beginning with a free trade equilibrium and imposing an import tariff increases the domestic price of imports leading to increased government revenue and to deadweight losses.

Question

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Imposing an import tariff increases the domestic price of the imported goods, which can lead to increased government revenue from the tariffs collected. However, it also causes inefficiencies in the market, leading to deadweight losses as the higher prices reduce consumer surplus and can distort production and consumption decisions.

Beginning with a Free Trade Equilibrium and Imposing an Import