Question

Give two reasons why a country might impose a tariff on imported goods. Discuss the tradeoffs that nations make when imposing tariffs – who is benefits and who loses? What are some reasons for the widespread use of tariffs despite their overall implications for national welfare? (No Copy Paste) =>250 words

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Answer 1

Following are the reasons a country might impose a tariff on imported goods:

• To protect the domestic industries: government imposes tariffs on the imported goods to protect the domestic industries mainly infant industries from the low price competition.
• To restrict the excess supply of foreign commodities: by imposing tariffs on imports government controls the imports of foreign commodities which \helps domestic producers to maintain their supplies.

The tradeoffs that nations make when imposing tariffs: when government imposes tariff it affects the economic agents; consumers, producers and   government differently.

The gains: producers gain from the imposition of tariff as the quantity of imports decreases and domestic producers increases their supply.

Government also gains revenue from imposition of tariff.

The losses: consumers’ surplus decreases due to tariff imposition as the prices of imported commodities increases after imposition of tariff.

    

The reasons for the widespread use of tariff despite their overall implications for national welfare is :

• To protect domestic industries
• To maintain trade balance
• Encouraging domestic employment
• Protecting from dominance of MNCs etc.