Understanding Tariffs and Their Impact

What is a tariff?

• A tax on exports

• A tax on imports

• A subsidy for domestic producers

• A quota on foreign goods

Answer explanation

A tariff is specifically a tax imposed on imports, making imported goods more expensive. This is intended to protect domestic industries by encouraging consumers to buy local products instead.

How do tariffs generally affect the price of imported goods?

• They decrease the price

• They have no effect on the price

• They increase the price

• They stabilise the price

Answer explanation

Tariffs are taxes imposed on imported goods, which generally lead to higher costs for importers. These costs are often passed on to consumers, resulting in increased prices for imported goods.

Which of the following is a potential effect of tariffs on international trade?

• Increase in trade volume

• Decrease in trade volume

• No change in trade volume

• Elimination of trade barriers

Answer explanation

Tariffs increase the cost of imported goods, making them less competitive compared to domestic products. This typically leads to a decrease in trade volume as countries import less due to higher prices.

How might tariffs impact economic growth in the short term?

• They always boost economic growth

• They can lead to higher prices and reduced consumption

• They have no impact on economic growth

• They guarantee increased employment

Answer explanation

Tariffs can increase the cost of imported goods, leading to higher prices for consumers. This can reduce overall consumption, negatively impacting economic growth in the short term.

What is one way tariffs can affect international relations?

• They always improve diplomatic ties

• They can lead to trade wars

• They have no impact on international relations

• They ensure mutual economic benefits

Answer explanation

Tariffs can strain international relations by prompting retaliatory measures, leading to trade wars. This escalation can harm diplomatic ties and economic stability, making the correct choice "They can lead to trade wars."

Which of the following is a common argument in favour of tariffs?

• They reduce government revenue

• They protect domestic industries

• They increase foreign competition

• They lower consumer prices

Answer explanation

A common argument in favor of tariffs is that they protect domestic industries by making imported goods more expensive, thus encouraging consumers to buy locally produced products.

What is a potential negative effect of tariffs on consumers?

• Lower prices for goods

• Increased variety of products

• Higher prices for goods

• Improved product quality

Answer explanation

Tariffs increase the cost of imported goods, leading to higher prices for consumers. This can reduce purchasing power and limit access to affordable products, making 'Higher prices for goods' the correct choice.

How can tariffs influence a country's balance of trade?

• They always improve the balance of trade

• They can lead to a trade surplus

• They have no effect on the balance of trade

• They can lead to a trade deficit

Answer explanation

Tariffs can increase the cost of imports, making domestic products more competitive. This can lead to higher exports and reduced imports, potentially resulting in a trade surplus.

What is a retaliatory tariff?

• A tariff imposed to punish domestic producers

• A tariff imposed in response to another country's tariffs

• A tariff that reduces import taxes

• A tariff that encourages exports

Answer explanation

A retaliatory tariff is specifically imposed in response to tariffs set by another country, aiming to protect domestic industries and balance trade relations.

How might tariffs affect employment in the short term?

• They always increase employment

• They can protect jobs in certain industries

• They have no impact on employment

• They always decrease employment

Answer explanation

Tariffs can protect jobs in certain industries by making imported goods more expensive, encouraging consumers to buy domestically produced products. This can lead to job preservation or growth in those specific sectors.