True or False: Higher trade barriers create more monopoly power.

• A. True
• B. False
• C. Not necessarily
• D. It depends on industry

Answer: (A)

Higher trade barriers lessen foreign competition, which reduces competitive pressure on domestic firms. When imports face higher costs or limits, domestic producers can raise prices and restrict output without losing as many customers, increasing their ability to set prices above costs—i.e., their market power. In industries where a few domestic firms already dominate, barriers amplify this effect, making the protected market feel more like a monopoly or oligopoly. The core idea is that less competition from abroad gives domestic players more control over prices, though the strength of the effect varies by industry and how important foreign rivals are there.