Question 38

Tariffs encourage consumers to reduce their consumption.

Tariffs are taxes imposed on imported goods, which typically raise the prices of these goods in the domestic market. As a result, consumers are likely to reduce their consumption of imported items due to the higher costs associated with them.

A) They increase the domestic quantity demanded.

This option is incorrect because tariffs raise the price of imported goods, which generally leads to a decrease in domestic quantity demanded. Higher prices discourage consumption rather than encourage it.

B) They encourage consumers to reduce their consumption.

This option is correct as it reflects the reality that higher prices from tariffs lead consumers to buy less of the affected imported goods. The reduction in consumption can also lead to a shift towards domestically produced alternatives.

C) They increase the quantity of imports.

This option is incorrect because tariffs are designed to discourage imports by making them more expensive. Therefore, the quantity of imports generally decreases as a result of tariffs.

D) They lower the price of affected imported goods below the world price.

This option is also incorrect. Tariffs increase the price of imported goods, making them more expensive than their world price rather than lowering them. The imposition of tariffs effectively creates a price floor above the world market price.

Conclusion

The correct answer, B, accurately encapsulates the economic impact of tariffs, which discourage consumption due to higher prices. All other options fail to recognize the fundamental nature of tariffs as a means to increase prices on imports, thereby reducing demand and consumption rather than promoting it.