Which of the following raises domestic prices when demand is relatively high?
A) Domestic subsidies
B) Lump sum tariff
C) Excise tariff
D) Lump sum tariff and excise tariff

Question

Quizplus · Accepted Answer

An excise tariff is a tax on a specific type of domestic goods, which raises its price and reduces its supply. Therefore, when demand is relatively high, an excise tariff will further increase domestic prices by reducing the quantity supplied, leading to higher prices. Domestic subsidies may lower domestic prices as they provide financial support to domestic producers and can help increase the domestic supply. A lump sum tariff is a fixed tax on imports that does not vary with the value of goods, so it does not impact domestic prices. A lump sum tariff and excise tariff will further raise domestic prices, but since the question asked for the choice that raises domestic prices when demand is relatively high, only an excise tariff is the correct answer.

Which of the Following Raises Domestic Prices When Demand Is