Question

The four direct effects of tariffs are: a decline in consumption, increased domestic production, tariff revenue, and a(n) ______.

A. decline in domestic profits
B. increase in imports
C. decline in imports
D. decrease in prices

Answer 1

The fourth direct effect of tariffs is a decline in imports. When tariffs are reduced, imported goods like flat-screen TVs become cheaper, consumption increases, and the equilibrium price decreases but quantity increases.

Step-by-step explanation:

The correct answer to the question of what the four direct effects of tariffs are, with the last being unknown, is C. decline in imports. The other three effects mentioned are a decline in consumption, increased domestic production, and tariff revenue.

When a tariff on imported goods, such as flat-screen televisions, is reduced, we can expect the following changes in the market based on a four-step analysis:

1. The reduction in tariff would lead to a decrease in the cost of importing flat-screen TVs.
2. With lower costs, imported flat-screen TVs will become cheaper for consumers.
3. As a result, consumers will be inclined to purchase more of these TVs, leading to an increase in consumption.
4. Facing competition from cheaper imports, domestic producers may be forced to lower their prices to remain competitive, which results in a decrease in the equilibrium price but an increase in the equilibrium quantity of flat-screen TVs in the market.