Question

1.

A. What are the effects of a tariff on consumer surplus?

B. Although free trade maximizes world welfare, most nations impose some trade restrictions that benefit special groups in the nation. WHY?

C. What is the difference between a nominal and an effective tariff?

Answer 1

In an importing nation, consumer surplus falls as the domestic price of imported good increases due to duties imposed. & Also price of domestic substitute too increases.

2.) Nation do impose tariff to a.) Save the consumers interested, as producers gain & consumer loss

b) to save the domestic employment

c) to save infant industry from competition

d) from perspective of national security

e) retaliation from other nations

3) nominal tariff rate is rate of duty on value of imported final product. It is more relevant to consumers.

Effective tariff rate is relevant from perspective of producers if the industry which is being protected through imposing tariff on imports. It takes into account the duties that are imposed on raw & intermediate products.

It measures the actual rate of protection that is being provided to domestic competing firm through nominal tariff rate