A tariff makes the total economy
A) better off because it increases the domestic production of the good.
B) better off because it decreases the deadweight loss from international trade.
C) worse off because it creates a deadweight loss.
D) worse off because it creates revenue for the government.
E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.

Question

Quizplus · Accepted Answer

A tariff creates a deadweight loss by artificially increasing the price of the imported good, leading to a reduction in the quantity consumed and a reduction in the gains from trade. While it may increase domestic production and decrease the trade deficit, the resulting loss of consumer and producer surplus outweighs those benefits, making the overall economy worse off.

A Tariff Makes the Total Economy