CH7_Tariffs - Introduction Tariffs Tariff the most basic...

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1 Tariffs Tutional BBA International Economics. 2 Introduction • Tariff Î the most basic barrier to trade. • To describe the effects of a tariff, we employ a basic demand and supply model. • This model allows us to focus on the effects that tariff have with respect to – Import. – Domestic consumption. – Domestic production. 3 Tariff • Tariff : a tax on imports imposed by a government. • A tariff does the following: – affect the domestic Consumption of an imported good. – affect the domestic Production of goods that compete with the imported good. – affect the foreign production of imported good. – Changes the structure of the domestic economy. • Tariff imposed by government are designed as – Revenue tariff Î levied on a good that is not demestically produced. Î most common in the developing countries. – Protective tariff Î Protect a domestic industry from foreign competition. 4 Types of Tariffs 1. A Specific tariff Measured as a fixed amount of money per unit import, e.g.1$ per ton. If there are large differences in the imported price per unit, the effect of a tariff are not uniform across low-price and high-price items. •E x a specific tariff of $1,000 imposed on automobile. Lower-income consume Î Hyudai Î Higher % tariff Higher- income consume Î Poches Î Lower % tariff The result of a specific tariff would be to encourage domestic producers to produce lower-priced or less expensive goods.
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5 Types of Tariffs 2. Advalorem tariff Measured as a percentage of the value of the imported good.
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This note was uploaded on 10/13/2010 for the course INTER BUS IB121 taught by Professor Miko during the Spring '10 term at UC Riverside.

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CH7_Tariffs - Introduction Tariffs Tariff the most basic...

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