Tariffs are Costly Options

Answer the following questions to check your understanding of the story.

Why did the tariffs decrease imports?

Because in markets with a new tariff, ___________ decreased and ___________ increased.

a) supply of U.S. firms; demand

b) the quantity supplied by U.S. firms; the quantity demanded

c) the quantity demanded; the quantity supplied by U.S. producers

d) demand; supply of U.S. firms

Wrong! - Does a U.S. tariff on imports change demand and supply? Or does it change the quantity demanded and the quantity supplied?

How does a U.S. tariff on imports influence the price paid by U.S. consumers and the price received by U.S. producers?

Nice Work! - In markets with a tariff, the price rises, the quantity demanded by U.S. consumers decreases, and the quantity supplied by U.S. producers increases, so U.S. imports decrease.

Why did tariff revenue increase when imports decreased?

Because the ___________ exceeded the ___________.

a) percentage increase in the tariff; percentage decrease in imports

b) purchases of foreign goods; purchases of domestic goods

c) percentage decrease in imports; percentage increase in tariff rate

d) purchases of domestic goods; purchases of foreign goods

Wrong! - Tariff revenue equals imports multiplied by the tariff on each unit of the imported good. Why would tariff revenue increase when imports decrease?

Well Done! - Tariff revenue equals imports multiplied by the tariff on each unit of the imported good.

The increase in the tariff increases tariff revenue and the decrease in imports decreases tariff revenue. When the percentage increase in the tariff exceeds the percentage decrease in imports, total tariff revenue increases.

Who are the winners and losers from U.S. tariffs?

___________ win and ___________ lose.

a) U.S. consumers and society; U.S. producers

b) U.S consumers and U.S. producers; society

c) U.S. producers; U.S. consumers and society

d) Society; U.S. consumers and U.S. producers

Wrong! - When a tariff is applied, how does the price change? How does the quantity bought by U.S. consumers change? How does the quantity sold by U.S. producers change? Who wins and who loses?

Good Job! - U.S. producers win because they sell more at a higher price.

U.S. consumers lose because they pay a higher price, buy a smaller quantity, and pay tariff revenue to the government.

Society loses because the increased domestic production could have been obtained at a lower cost as an import and because less is bought at a higher price.

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