trade barriers/ restrictions

Question 1

analysis

Answer 1

free trade equilibrium
- under the free trade, the market will be an equilibrium at points C with price Pw and Qd1 of the good being bought. Qs1 supplied domestically at world price so volume of imports will be Qd1-Qs1

• consumer surplus = PwAC

tariff introduced
- introduction of the tariff which increases world price to Pw+t.

• causes contraction in demand to Qd2, some consumer surplus reduced

producer surplus
- domestic firms have an incentive to produce as price increases, causing extension in supply from Qs1-Qs2

• producer surplus increases

imports
- difference between Qd and Qs domestically falls to Qd2-Qs2

tax revenue
-government receives tariff for each unit imported, thus total revenue for the government is FEHG

deadweight loss of welfare
- therefore because of the lost consumer surplus, this causes deadweight loss to society

Question 2

types of trade barriers

Answer 2

• protectionism ( protects domestic industry and employment )
• import quotas ( limits on import quantity)
• embargoes ( ban of trade in a country)
• tariffs