Question

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

A)A tariff will increase world price for domestic consumers or increase price of imported shirt.

Increase in world price lead to decrease in consumption of good by domestic consumers as a result consumer surplus decreases. So domestic consumers are worsen off by this decision.

On other hand , increase in world price ,lead to increase in quantity supplied by domestic supplier, as a result producer surplus increase.so domestic producers get benefited from this decision.

Due to tariff , government able to generate revenue for themselves,so they also get benefited from this.

B) Government put tariff on imports to protect the interest of domestic producers.

Because of lower world price, foreign producers get mostly the share of domestic market. As a result domestic producers get lower profit and couldn't grow much.

So to protect them , government put tariff on imports to make foreign good more costly as a result sales of domestic good increase and domestic producers get to increase their profit.

But due to tariff , consumer have to pay higher prices , as result quantity demanded decreases and consumer surplus falls. On other hand, government able to generate extra revenue.

C) Increase in tariff will decrease demand of imported good ,as a result demand of foreign currency decrease. Or supply of Australia dollar decrease. Because to buy foreign currency, Australia dollar is traded,so it supply is directly correlated with foreign currency demand.

Decrease in supply of Australia dollar will increase value of Australia dollar against foreign currency. So as a result exchange rate increases.