3.22.2016 Slides - Tariffs Tax on Imports FIGURE 6-6 The...

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FIGURE 6-6 The Effects of a Tariff on Ethanol Without a tariff on ethanol, U.S. producers will sell 3.0 billion gallons of ethanol, U.S. consumers will purchase 9.0 billion gallons, and imports will be 6.0 billion gallons. The U.S. price will equal the world price of $1.00 per gallon. The $0.50-per-gallon tariff raises the price of ethanol in the United States to $1.50 per gallon, and U.S. producers increase the quantity they supply to 4.5 billion gallons. U.S. consumers reduce their purchases to 7.5 billion gallons. Equilibrium moves from point G to point H . The ethanol tariff causes a loss of consumer surplus equal to the area A + C + T + D . The area A is the increase in producer surplus due to the higher price. The area T is the government’s tariff revenue. The areas C and D represent deadweight loss. Tariffs: Tax on Imports Tariffs
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Relative Price and Supply Effects of a Tariff If the home country imposes a tariff on food imports, the pr ice of food relative to the price of cloth rises for domestic c onsumers.
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