gb3 - Realities of International Trade Although economic...

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Realities of International Trade Although economic theory suggests that countries gain from trade, the reality is that a number of trade barriers exist. These include tariff barriers and nontariff barriers. Tariff Barriers Tariff barriers use tariffs to discourage imports. An import tariff is essentially a tax on imports. To understand the economic implications of tariffs, consider the following: A country will import a good if the world price is below the domestic equilibrium price. The amount that the country will import is equal to the difference between the domestic quantity demanded and the quantity supplied at the world price. When a tariff is imposed, the world price effectively increases by the amount of the tariff. As a result, the domestic quantity demanded falls, the domestic quantity supplied rises, and the number of imports falls. Domestic consumers lose because they have to pay high prices for the good. Domestic producers gain, because they are able to sell their goods at higher prices. The
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gb3 - Realities of International Trade Although economic...

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