Analyzing Tariffs with Supply and Demand

•Protectionism – the economic policy of restraining trade through tariffs, quota’s or other regulations that burden foreign producers but not domestic producers.
•Tariff – a tax on imports.
•Quota – restriction on the quantity of goods that can be imported.







The (Net) Welfare Costs of Protectionism

•A tariff has two effects that influence welfare:
1. Domestic consumption
2. Domestic production
Both of these effects reduce welfare
1. Domestic consumption
    Lost gains from trade
2. Domestic production
     Wasted resources from higher-cost production





Conclusions

•Tariffs increase prices to consumers so domestic consumption falls and creates a deadweight loss.
•Tariffs divert production from low-cost (world) producers to high-cost (domestic) producers and this wastes resources.
•Distributions of losses and gains
-Bad for consumers
-Good for domestic producers
-Bad overall

Última modificación: martes, 14 de agosto de 2018, 10:12