Topic 6: Tariff Model Flashcards
Show the welfare for a small importing company under free trade.
Show the change in welfare when a small country imposes a tariff on a good it imports.
Red: Consumer Welfare.
Blue: Producer Surplus.
Grey: Government Revenue.
Black: Dead Weight Loss.
Domestic producers gain some consumer surplus.
Show the resulting import price when a large country imposes a tariff.
Show the welfare result for a large country when it imposes a tariff.
A deadweight loss of d & f is imposed.
But revenue e and h is gained. h was not previously surplus.
If d & f is smaller then h, the country gains.
Show the welfare changes imposed on an exporting country, when it’s export has a tariff imposed on it by a large country.
b is transfered to consumers.
c is lost by producers, becomes deadweight loss.
Show the welfare changes of a small exporter which offers a subsidy
Area C is added.
Areas B, C & D are the government expenditure.
This makes areas B & D deadweight loss.
Show the welfare effect of a foriegn country dumping goods on a region.
Area A is transfered to consumers from producers.
Areas B, C & D are gained.
Show the results of a countervailing duty imposed on ‘dumping’.
The effects cancel out, decreasing welfare by B & D.
Compared to the pre-dumping situation, the gain is simply C, the revenue.
Show the effect of a binding quota
B, C and D are deadweight loss - unless the government sells units of the quota, which allows it to reclaim up to C.
