Question

what is the impact of a tariff placed by the home country on its imports from abroad?

Answer 1

When a home country places tariff on its imports from abroad then in such case imposition of tariff raises the price of imports in home country.

As price of imports rises, they become relatively expensive with respect to domestically produced competitive goods.

This relative expensiveness of imports reduce the demand for them and thus the importers lose out in terms of sales and revenue.

Domestic producers gain as they are now able to increase their sales as tariff on imports has artificially made their goods relatively cheaper.

However, as these producers are not efficient producers in free-trade scenario, this increased production by them only leads to inefficiency.

Domestic consumers also lose as expensive imports due to tariff compel them to reduce their consumption.

Inefficient production and decreased consumption creates deadweight loss. This indicates a decrease in total surplus due to tariff.