Question

When does an import tariff raise welfare for the Home country, and why? What is the effect of a tariff worldwide on welfare, and why? Explain your answers in words in a short essay (3-4 paragraphs).

Answer 1

Tariff impact to consumers in the importing region. As a consequence of the tariff the buyer of the drug in the importing country is worse off. The increase in the domestic price of both manufactured products and domestic replacements decreases retail demand surplus. Tariff impact on producers at the importing region. As a consequence of the tariff, producers within the importing nation are better off. The increase in their product's price raises industry supplier surplus. The price rises often cause an increase in the production of existing businesses (and probably the introduction of new firms), an increase in jobs, and an increase in income, payments, or both to fixed costs.

Tariff impacts on the Government of the importing nation. As a consequence of the tariff, the Government collects tariff revenue. Who would benefit from the tax depends on how it is spent by the Government. Such funds help finance various government spending programs; thus, the likely beneficiary of those benefits would be someone within the country.

Tariff consequences to the country of importation. The net impact on the country's welfare is calculated by summing up the benefits and losses to customers, producers and government. The net effect consists of two components: a negative loss in efficiency of output and a negative loss in efficiency of consumption The two losses together are usually referred to as "deadweight loss."