If a tariff is placed on watches, the price of both domestic and imported watches will rise by the amount of the tariff.

Question

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A tariff is a tax on imported goods. When a tariff is placed on watches, the price of imported watches will increase by the amount of the tariff. This is because the importer will pass on the cost of the tariff to the consumer in the form of a higher price. The price of domestic watches will also increase by the amount of the tariff. This is because domestic producers will be able to raise their prices without losing market share to imported watches.

If a Tariff Is Placed on Watches, the Price of Both