A tariff is a? a. price ceiling b. tax c. quantity limit d. subsidy
The correct answer and explanation is:
The correct answer is b. tax.
A tariff is a tax imposed by a government on imported goods or services. It is a form of trade barrier that aims to regulate the flow of goods into a country by making imported products more expensive compared to domestic products. This practice helps protect domestic industries from foreign competition and can be used to generate revenue for the government.
Tariffs are typically calculated as a percentage of the value of the imported goods, known as an ad valorem tariff, or as a fixed fee per unit of the good, known as a specific tariff. The effect of a tariff is twofold: it raises the price of the imported goods, making them less attractive to consumers, and it encourages consumers to buy domestic products instead. While this may help protect domestic industries, tariffs can also lead to higher prices for consumers, reducing overall consumer welfare.
Governments use tariffs for various reasons. For instance, they may want to protect emerging industries from foreign competition, or they may impose tariffs as a form of retaliation in trade disputes. Tariffs can also be used to address trade imbalances by discouraging imports and encouraging exports, although they often result in higher prices for consumers and may lead to trade wars.
Tariffs differ from price ceilings, which set a maximum price that can be charged for a good or service, and from quantity limits, which impose restrictions on the amount of a good that can be imported. A subsidy, on the other hand, is a financial aid given by the government to domestic producers to help reduce production costs and make domestic goods more competitive.
In summary, a tariff is a tax on imports, designed to protect domestic industries, regulate trade, and raise government revenue.