Tariffs can reduce overall welfare because:

• A. They always increase national welfare.
• B. They have no impact on welfare.
• C. Tariffs can reduce overall welfare because prices rise for consumers and efficiency may be reduced.
• D. They always decrease prices.

Answer: (C)

Tariffs act like a tax on imports, pushing up the price of foreign goods for consumers and often spreading higher costs to related domestic items. This reduces consumer surplus because people buy less at a higher price. While domestic producers may gain from the protection, that gain typically doesn’t offset the larger losses in what consumers pay and in trade efficiency. The government does collect tariff revenue, but this revenue doesn’t fully compensate for the lost welfare from fewer trades and from resources being redirected to less efficient production. In short, tariffs can make prices higher and reduce efficiency, leading to a net drop in total welfare.