Tariffs Raise Domestic Prices, Reducing Demand and Boosting Local Supply

Steps:

• Tariff increases the effective price of imported goods from the world supply curve S_w.
• Higher domestic price shifts consumption along demand curve D, decreasing quantity demanded.
• Elevated price incentivizes domestic producers to supply more of the good.
• Result: domestic quantity demanded falls, while domestic quantity supplied rises.

Why B is correct:

• Tariffs wedge between world and domestic prices (per trade theory), raising price to reduce imports and expand local output.

Why the others are wrong:

• A: Domestic supply rises with protection, not falls.
• C: Demand falls due to higher price, does not rise.
• D: Demand falls from price increase; supply rises but not both.

Final answer: B