Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 9 - Part III - Application: International Trade - Questions for Review - Page 189: 4

Answer

A tariff is a tax on imports. A tariff causes a deadweight loss because a tariff is a type of tax. Like most taxes, it distorts incentives and pushes the allocation of scarce resources away from the optimum.

Work Step by Step

A tariff moves a market closer to the equilibrium that would exist without trade and, therefore, reduces the gains from trade. Although domestic producers are better off and the government raises revenue, the losses to consumers exceed these gains.
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