International Trade Flashcards
Explain the concept of a tariff.
Tax on goods produced abroad and sold domestically (tax on imported goods). A method used to restrict international trade.
Explain dead weight loss.
The fall in total surplus that results from a market distortion, such as a tax (new equilibrium price that is settled for the transaction will be higher and therefore some burden of this will be passed on to the consumer)
How are tariff’s and dead weight loss related? Explain.
A tariff causes a deadweight loss because a tariff is a type of tax. Like most taxes, it distorts incentives and pushes the allocation of scarce resources away from the optimum. (Oversupply and under demand)
What are the two primary categories of trade barriers that exist?
Tariffs and Non-Tariff
If an import tariff is imposed on coconuts that are imported into the U.S., how will this impact the price of coconuts for U.S. consumers?
Increase the price.
Why might a government be interested in imposed an import tariff on a good? What benefit would the government derive primarily?
The tariff will reduce the amount of importants, increase the amount of exports. The primary benefit is that it raises revenue for the government.
How would imposing an import tariff on cigars impact the domestic production of cigars?
Quantity increases for exporting at world price.
If an import tariff on coconuts was removed in the U.S., how would this impact the demand for coconuts by U.S. consumers?
The demand would increase.
What would happen to the overall domestic demand for a good if an import tariff were imposed on that good?
It would increase
How does a tariff generally impact the following entities: consumers, producers, government? Compare the effects between the entities.
Domestic sellers are better off, and domestic buyers are worse off. In addition, the government raises revenue.
Why do nations trade
Because trading benefits both sides of the trade. Bothe exporting and importing countries.
