Skip to content

IAI Actuarial Core Principles · Business Economics · Impact of macroeconomic policies on businesses

Government imposes a higher import tariff on foreign steel used by Indian manufacturers. Which outcome is most consistent with standard economic analysis for the domestic economy as a whole?

Domestic steel producers gain, while steel-using firms and consumers lose. A tariff raises the domestic price of steel, helping protected producers and raising government revenue, but it increases input costs downstream and reduces consumer surplus, causing an overall efficiency loss.

  1. ADomestic steel producers gain, but steel-using firms face higher input costs and consumers lose from higher pricesCorrect
  2. BAll domestic firms gain because competition from imports falls
  3. CDomestic steel prices fall because the tariff increases supply
  4. DConsumer surplus rises because the government collects tariff revenue
  5. The country's terms of trade are certain to worsen for all goods

Explanation

A tariff raises the domestic price of steel, benefiting domestic producers and the government through revenue. Downstream users and consumers pay more, and there is a deadweight loss. Domestic prices rise, not fall, and consumer surplus declines.

Did you get it right without looking?

One question tells you little. A timed set on Impact of macroeconomic policies on businesses shows your real accuracy, how long you take and where you lose marks.

Practise Impact of macroeconomic policies on businessesFree diagnostic mock

More Impact of macroeconomic policies on businesses questions