Impact of Tariffs When World Price is Lower

When the world price is lower than the domestic price, a tariff on a good leads to:

lower domestic consumption of the good than under free trade. lower domestic production of the good than under free trade. tariff revenues that will be lower than under free trade. domestic imports that will be higher than under free trade.

When the world price is lower than the domestic price, a tariff on a good leads to:

1. Lower domestic consumption of the good than under free trade: This is true because the tariff raises the price of the imported good, making it more expensive for consumers, which typically leads to a decrease in consumption.

2. Lower domestic production of the good than under free trade: This is generally not true. A tariff can protect domestic producers by making imported goods more expensive, which can lead to an increase in domestic production compared to a situation without the tariff.

3. Tariff revenues that will be lower than under free trade: This is not accurate. Tariff revenues are generated from the imports that are subject to the tariff, and while the total volume of imports may decrease, the revenue from the tariff itself is based on the tariff rate applied to the quantity of imports.

4. Domestic imports that will be higher than under free trade: This is false. A tariff typically reduces the quantity of imports because it raises the price of the imported goods, making them less attractive to consumers compared to domestic alternatives.

In summary, the correct statement is that a tariff leads to lower domestic consumption of the good than under free trade.