Unformatted text preview: A+B P (in millions) Pd=120
B C D 200 500 After Trade Welfare Domestically:
D Net Welfare increase with Trade=C+D
Q Note: while some will lose with trade, the producer’s losses are less than 9
the consumer’s gains. Tariffs A Tariff is a tax on a good that is imposed by the importing country when an imported good crosses the international boundary.
Why Would a Country do this? Provide revenue to the government
Promote domestic industry Restricting free trade hurts overall welfare of importing country.
10 Losses from Tariffs Suppose the government of the importing country imposes a tariff of 15 million, thus the world price increases to 115 million.
Domestic Welfare for Importing Country
Before Tariff on Trade Welfare:
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- Spring '08
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