When the government increases tariffs:
A) production switches from low-cost foreign producers to high-cost domestic producers, causing resources to be wasted.
B) domestic consumers buy more goods, increasing the gains from trade.
C) domestic producers produce more output, increasing the gains from trade.
D) deadweight losses are eliminated because foreign producers sell their product below cost.

Question

Quizplus · Accepted Answer

When the government increases tariffs, it makes foreign-produced goods more expensive, which reduces imports and makes domestic production more attractive. However, this can lead to wasted resources as production shifts from low-cost foreign producers to high-cost domestic producers. Domestic producers may benefit, but consumers will likely pay higher prices, and deadweight losses may also occur.

When the Government Increases Tariffs