What happens to the incentives for producers when an import tariff is imposed?

When an import tariff is imposed, it raises the price of imported goods, making domestic products comparatively cheaper. This price disparity creates a stronger incentive for domestic producers to increase their output and sales because consumers may shift their preference away from higher-priced imports to more affordable domestic alternatives.

As a result, producers may respond by ramping up production to meet the expected higher demand for their goods, thereby increasing their overall sales volume and potentially their profits. The tariff effectively protects domestic industries from foreign competition, allowing them to capture a larger market share without having to compete with lower-priced imports. This scenario enhances their incentives to produce more goods.

The other options do not accurately reflect the economic principles at play in this situation. While some uncertainty could occur in the market, the fundamental shift in prices due to tariffs clearly benefits domestic producers by encouraging them to expand their output.