Suppose a Government Imposes an Import Tariff That Is Too

Multiple Choice

Suppose a government imposes an import tariff that is too large and exceeds the tax required to completely shut down foreign imports. What is the impact of this mistake on the market outcome?

A) The impact is the same as intended-there are no imports and the domestic market clears at the domestic equilibrium price.
B) The domestic price rises above the domestic equilibrium price, which results in an excess supply.
C) The domestic and foreign prices rise and cause consumer surplus losses in exporting and importing regions.
D) The domestic price rises above the domestic equilibrium price, which results in an excess demand.