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ECON 2306 10 Government and Trade

Tariffs atariffisataxonagoodthatisimposedbythe

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Unformatted text preview: A+B P (in millions) Pd=120 Pw=100 A B C D 200 500 After Trade Welfare Domestically: CS=A+B+C+D PS=0 TS=A+B+C+D 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 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: CS=A+B+...
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