Question

An import quota or tariff on French wine that raises the prices for wine will probably: Select one: a. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices. b. hurt both domestic wine drinkers and domestic wineries, but this will be more than offset by a reduction in driving fatalities. c. hurt both domestic wine drinkers and domestic wine producers because of a reduction in competition. d. hurt domestic wineries, which will lose business as a result of the higher prices.

Answer 1

Answer:

A) hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

Explanation:

The basic purpose of import tariffs or quotas is to help or protect domestic producers of similar goods. But taxes always end up hurting consumers.

First of all, the price of French wines will increase due to the tariffs (which are additional taxes) or because of the import quotas that reduce the quantity supplied. That of course will reduce the availability of French wines and consumers will be forced to pay more for them.

On the other hand, domestic wine producer will benefit because competition will decrease. Less competition means that they can sell their own products at higher prices and still be cheaper than fancy imported French wines. Again, consumers lose.