The imposition of tariffs on imports results in deadweight losses for the home country.These losses consist of the:
A)Revenue effect and production effect
B)Consumption effect and production effect
C)Redistributive effect and consumption effect
D)Terms of trade effect and consumption effect

Question

Quizplus · Accepted Answer

The deadweight losses resulting from the imposition of tariffs on imports consist of the consumption effect and production effect. The consumption effect is the reduction in the welfare of consumers due to the higher prices resulting from the tariff. The production effect is the inefficiency caused by the misallocation of resources as domestic firms are incentivized to produce more of the protected good, but at a higher cost than imports. The revenue effect may lead to government revenue, but it does not result in deadweight losses. The redistributive effect and the terms of trade effect may also result from tariffs, but they do not directly contribute to deadweight losses.

The Imposition of Tariffs on Imports Results in Deadweight Losses