Question

If a small country imposes a tariff, then

a. the producers must suffer a loss.
b. the consumers must suffer a loss.
c. the government revenue must suffer a loss.
d. the demand curve must shift to the left.
e. the world price on that item will shift.

Answer 1

A tariff is a tax imposed on imported goods that affects the price and quantity of the item. Consumers suffer a loss as they have to pay a higher price for the imported product.

Step-by-step explanation:

A tariff is a tax imposed on goods imported into a country. When a small country imposes a tariff, it affects the price and quantity of the imported item. Specifically, a tariff on a product will increase its price, decrease the quantity demanded by consumers, decrease the quantity supplied by producers, and generate revenue for the government.

For example, if a small country imposes a tariff on imported cars, the price of imported cars will increase. This will result in fewer consumers being able and willing to purchase the cars, thus decreasing the quantity demanded. At the same time, domestic car producers may benefit from the tariff as their cars become relatively cheaper than the imported ones, resulting in an increase in domestic supply.

Therefore, the correct answer to the student's question is b. the consumers must suffer a loss as they will have to pay a higher price for the imported product.