Question

How does imposing higher taxes on imports help in restricting foreign trades?

• A. Imposing a higher tax on imports encourages the importers to make more profit.
• B. Imposing a higher tax on imports reduces the expenditure of the government.
• C. Imposing a higher tax on imports results in an increase in the market price and reduces the demand for imported goods.
• D. Imposing a higher tax on imports impacts the export of goods and services to other countries.

Answer 1

The correct option is C Imposing a higher tax on imports results in an increase in the market price and reduces the demand for imported goods.

When the government decides to raise the tax rate on imports, it affects the overall price of imported goods. As a result, the market price of such goods also increases. With an increase in the market price, the demand for such goods decreases, decreasing the import.