Question

Which of the following is not a reason why imposing a tariff on imported goods may reduce a​ country's overall economic​ well-being?

A. It encourages domestic consumers to substitute away from the​ now-more expensive good to a​ second-best good.

B. By discouraging​ low-cost foreign goods in favor of​ high-cost domestic​ goods, it raises prices to consumers.

C. Tariffs encourage producers to remain in protected industries where they​ don't have a comparative advantage.

D. By limiting the number of goods allowed into a​ country, tariffs drive up prices by creating an artificial condition of scarcity.

Answer 1

Question

Free trade is said to boost the overall economic well-being in a country.

Trade restriction such as tariff distorts the market and reduce the economic well being.

It is true that tariff drives up domestic price leading to decrease in domestic demand and increase in domestic supply.

So, country moves to new arrangement where lower domestic demand is met by increased domestic production and lower imports.

There is no scarcity of good.

Thus,

The correct answer is option (D).