Question

which of the following are reasons why governments might use tariffs?
i. tariffs raise government revenue.
ii. tariffs can protect domestic trade by making foreign trade more expensive.
iii. tariffs reduce the amount of money flowing in to a country, which reduces inflation.
a. i and ii
b. ii only
c. ii and iii
d. iii only
please select the best answer from the choices provided

Explanation:

• Reason I: Tariffs are taxes on imported goods, so they generate revenue for the government. This is a valid reason.
• Reason II: By making foreign goods more expensive (due to the tariff), domestic producers face less competition, so domestic trade (production and sales of domestic goods) is protected. This is a valid reason.
• Reason III: If foreign goods are more expensive, consumers may buy more domestic goods. Also, the money flowing into the country (from imports) is reduced because imports become costlier, so less money leaves the country (or flows in for imports), which can help reduce inflationary pressures from excessive imports. This is also a valid reason.

Since all three (I, II, III) are valid reasons for governments to use tariffs, the correct option is the one that includes all three.

Answer:

c. II and III