Question

When does an import tariff raise welfare for the Home country, and why? What is the effect of a tariff worldwide on welfare, and why? Explain your answers in words in a short essay (3-4 paragraphs).

Answer 1

As a consequence of the tariff, the buyer of the commodity in the importing country is facing a decline in health. The increase in the domestic price of both imported products and domestic substitutes decreases the amount of consumer surplus on the market Producers experience a rise in well-being as a result of the tariff in the importing country. Increasing the domestic market price of their commodity increases the industry's producer surplus. The price increases often cause an increase in the production of existing companies (and likely the introduction of new companies), an increase in jobs and an increase in income and/or compensation at fixed costs

The net impact on the country's welfare is found by summing up the gains and losses for consumers, producers and government. The net effect consists of three components: a positive effect on trade, a negative distortion of output, and a negative distortion of consumption. Generally speaking, 1) it will elevate national welfare if a "big" country imposes a small tariff.

(2) if the tariff is set too high, national welfare will fall and (3) the optimum tariff will be favorable, optimizing national welfare.Tariff impacts on the Government of the importing nation. As a consequence of the tariff, the Government collects tariff revenue. Who would benefit from the tax depends on how it is spent by the Government. Such funds help finance various government spending programs; thus, the likely beneficiary of those benefits would be someone within the country.