Beruflich Dokumente
Kultur Dokumente
International Economics
Chapter 5: Trade Restrictions: Tariffs
Dominick Salvatore
John Wiley & Sons, Inc.
100 Supply
supply and demand
90
diagram. 80
• In this market, the 70
autarky equilibrium 60
40
and quantity of 50.
30
20
10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 11
University of Colorado, Colorado
Springs
Effects of a tariff: small country
100 Supply
$20, the country will be
90
an importer of the item. 80
• Domestic production 70
50
• Domestic consumption
40
will rise from 50 to 80. 30
International
• These changes 20 price
generate imports of 60 10
Demand
0
units. 0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 12
University of Colorado, Colorado
Springs
Effects of a tariff: small country
100 Supply
imports, the domestic
90
price rises from $20 (the 80
international price) to 70
the tariff price of $30. 60
• Domestic production 50
40
increases from 20 to 30. Tariff
30 price
• Domestic consumption 20
Dale R. DeBoer 5 - 13
University of Colorado, Colorado
Springs
Effects of a tariff: small country
100 Supply
begin collecting tariff
90
revenue in this market. 80
– The amount of the 70
revenue is $10 x 40 = 60
$400 per unit of time. 50
40
Tariff
30 price
20
10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 14
University of Colorado, Colorado
Springs
Welfare effects: small country
Dale R. DeBoer 5 - 15
University of Colorado, Colorado
Springs
Welfare effects: small country
Dale R. DeBoer 5 - 16
University of Colorado, Colorado
Springs
Welfare effects: small country
70
surplus increases.
60
• The imposition of a 50
tariff reduces this 40
surplus by the 30
Tariff
price
difference between the 20
international and the 10
Demand
tariff price. 0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 17
University of Colorado, Colorado
Springs
Welfare effects: small country
100 Supply
shaded region.
90
• Opening the economy 80
40
• Imposing a tariff 30
Tariff
price
increases the producer 20
surplus. 10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 18
University of Colorado, Colorado
Springs
Welfare effects: small country
100 Supply
tariff exist in the shaded
90
region. 80
• The entire region is lost 70
consumer surplus. 60
50
– The dollar value of this
40
region is ($10 x 70) + (½ Tariff
30
x $10 x 10) or $750. price
20
10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 19
University of Colorado, Colorado
Springs
Welfare effects: small country
100 Supply
• Of this, the portion 90
above the supply curve 80
is gained by producers. 70
10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 20
University of Colorado, Colorado
Springs
Welfare effects: small country
by producers. 80
70
• The rectangular area is 60
gained by the 50
government as tariff 40
revenue. 30
Tariff
price
– The dollar value of this 20
region is $10 x 40 or 10
Demand
$400. 0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 21
University of Colorado, Colorado
Springs
Welfare effects: small country
shaded regions. 90
70
known as the
60
deadweight loss of a
50
tariff. 40
– These have a dollar value 30
Tariff
price
of $750 - $250 (gained by
20
producers) - $400
10
(gained by the Demand
government) or $100. 0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 22
University of Colorado, Colorado
Springs
Effects of a tariff: large country
100 Supply
from that in a small
90
country because the 80
imposition of a tariff 70
results in a fall in import 60
international price. 40
30
– This is known is as the International
20 price
terms of trade effect.
10
Demand
0
0 10 20 30 40 50 60 70 80 90 100 110 120
Dale R. DeBoer 5 - 23
University of Colorado, Colorado
Springs
Effects of a tariff: large country
100
the international price Supply
90
from $20 to $15. 80
– This takes the tariff price 70
to $22.50 per unit. 60
Dale R. DeBoer 5 - 24
University of Colorado, Colorado
Springs
Effects of a tariff: large country
improvement in the
terms of trade,
30
production rises from
20 to 22.5 units.
• Consumption falls from 20
80 to 77.5 units.
• Imports fall from 60 to 10
55 units.
0
10 20 30 40 50 60 70 80 90
Dale R. DeBoer 5 - 25
University of Colorado, Colorado
Springs
Welfare effects: large country
40
• Consumer surplus
declines by the shaded
region. 30
10
0
10 20 30 40 50 60 70 80 90
Dale R. DeBoer 5 - 26
University of Colorado, Colorado
Springs
Welfare effects: large country
40
• Consumer surplus
declines by the shaded
region. 30
• Producer surplus
increases by the shaded
20
region offsetting part of
the consumer loss.
– This has a dollar value of 10
Dale R. DeBoer 5 - 27
University of Colorado, Colorado
Springs
Welfare effects: large country
40
• Consumer surplus
declines by the shaded
region. 30
• Producer surplus
increases by the shaded
20
region offsetting part of
the consumer loss.
• Government revenue 10
increases by $10 x 75 or
$750.
0
10 20 30 40 50 60 70 80 90
Dale R. DeBoer 5 - 28
University of Colorado, Colorado
Springs
Welfare effects: large country
40
• The net effect is a
welfare gain.
– Consumer surplus falls 30
by $196.875
– Producer surplus rises
by $53.125 20
– Government revenue
increases by $750
10
– This generates a net gain
of $500 for this case.
0
10 20 30 40 50 60 70 80 90
Dale R. DeBoer 5 - 29
University of Colorado, Colorado
Springs
Welfare effects: large country
40
• This result arises as the
improvement in the
terms of trade more 30
– Welfare lost
– Welfare gained 10
0
10 20 30 40 50 60 70 80 90
Dale R. DeBoer 5 - 30
University of Colorado, Colorado
Springs
Optimum tariff
Dale R. DeBoer 5 - 32
University of Colorado, Colorado
Springs
Nominal tariffs vs. effective
protection
Dale R. DeBoer 5 - 33
University of Colorado, Colorado
Springs
Nominal tariffs vs. effective
protection
Dale R. DeBoer 5 - 34
University of Colorado, Colorado
Springs
Examples of effective protection
Dale R. DeBoer 5 - 35
University of Colorado, Colorado
Springs
Examples of effective protection
$0
Free Trade
Dale R. DeBoer 5 - 37
University of Colorado, Colorado
Springs
Examples of effective protection
Dale R. DeBoer 5 - 38
University of Colorado, Colorado
Springs
Examples of effective protection
$0
Free Trade
Dale R. DeBoer 5 - 39
University of Colorado, Colorado
Springs
Examples of effective protection
Dale R. DeBoer 5 - 40
University of Colorado, Colorado
Springs