Question

Suppose a country in Europe is considering a tariff on T-shirts to try to protect its domestic T-shirt industry.

State two economic arguments against such a policy.

Answer 1

a) This will increase the overall cost of the T shirts that are produced in the market and that will lead to lower purchases in the market, at a higher the price the consumer surplus will fall and people will be demanding less in the market.

b) Second reason is when the tariff is imposed the inefficient producers who where not able to compete before in the world market will start producing domestically that will lead to wastage of resources and cause deadweight loss in the market.