Question

A tariff is a tax that consumers pay to the government. What impact does the act of paying this tax have on total gains from trade?

Answer 1

Paying a tariff reduces the gains from trade by limiting the variety of goods available to consumers and increasing prices.

Step-by-step explanation:

Tariffs are taxes that governments impose on imported goods and services. When consumers pay this tax, it increases the cost of imported goods, making them more expensive for consumers. This discourages imports and can protect domestic industries from foreign competition. Therefore, paying a tariff reduces the gains from trade because it limits the variety of goods available to consumers and increases the prices they have to pay.