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

The government imposes a tariff on imported steel. Which outcome is most likely for an Indian manufacturer that uses steel as an input and sells only domestically?

Its input costs rise and margins are squeezed unless it can pass the higher costs on. A tariff lifts the domestic price of imported steel and of competing local steel, so downstream users that buy steel face higher costs.

1. AIts input costs rise, squeezing margins unless it can pass costs onCorrect
2. BIts input costs fall because domestic steel producers become more efficient immediately
3. CIts output demand rises because consumers prefer tariffs
4. DIts exports become cheaper abroad
5. Its costs are unaffected because tariffs only change government revenue