Question

Question 6                                                                       

1. Rent Seekers in the domestic Shirt industry have requested that the government place a $2.00 per item Tariff on imported Shirts. Describe and explain the winners and losers from this action. A diagram would assist your answer here and attract further marks.
2. In general why would Governments place Tariffs on any items? What could be the impact of such Tariff actions by Governments?
3. How might a Tariff on a large volume high value imported item affect the supply and demand for Australian dollars? A diagram would assist your answer here and attract further marks.

Answer 1

Hi,

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Question:

a). Answer:

Rent Seekers in the domestic Shirt industry have requested that the government place a $2.00 per item Tariff on imported Shirts. Describe and explain the winners and losers from this action. A diagram would assist your answer here and attract further marks.

We know imposing tariff increase price for that particular product in the domestic market. Imposing tariff increase government's revenue but its decrease consumer surplus. But at the same time its increase producer surplus and its negatively affect social welfare. In this graph Pwp is world price, PT is price after imposing tariff. Here i have shown the consumer surplus area by pink color, producer surplus area by yellow color, tax revenue by black color and social loss by white color.

Graph:

b). Answer:

In general why would Governments place Tariffs on any items? What could be the impact of such Tariff actions by Governments?

A government place tariff to protect the domestic producers and decrease demand for imported product. Other side it helps in increasing government revenue and some times it helps in protect the environment. It also help in balancing the trade or managing trade deficit or gap. It promote to produce that particular product domestically and its creat opportunities in the domestic market and help in decreasing unemployment.

c). Answer:

How might a Tariff on a large volume high value imported item affect the supply and demand for Australian dollars? A diagram would assist your answer here and attract further marks.

Suppose Australia is a domestic country and places a Tariff on a large volume high value imported item. It will decrease supply of AUD and AUD will appreciate. You can see that the foreign exchange market is equilibrium at point "A" now placing tariff decrease supply and supply curve shift left from S to S1 and AUD get appreciated.

Graph:

Thank You