Chapter: 4 Tariffs

4 important questions on Chapter: 4 Tariffs

Tariff Welfare Effects:  Large Nation Model

Economic effects of an import tariff:

  1. Redistributive effect (From domestic consumers to domestic producers)
  2. Deadweight loss (Consumption effect + Protective effect)
  3. Revenue effect (Domestic revenue effect)
  4. Terms-of-trade effect (Economic effects of an import tariff)

Beggar-thy-neighbor policy

Is the practice of imposing protectionist policies to achieve gains from trade at the expense of other nations.
Should this practice be employed, one could invite retaliation!!

Effects of import tariffs on exporters

Higher production costs – from imported inputs
Can result in higher prices and depending on the elasticity of demand can reduce overseas sales.
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Raise the cost of living

  1. Higher wages and higher production costs
  2. International repercussions
  3. Lead to reductions in domestic exports from possible retaliatory tariffs.

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