With the help of a diagram, explain the extent to which the removal of a tariff might affect the volume of imports into the UK

Question 1

Intro

Answer 1

A tariff is a tax on an import, which will increase the domestic cost of purchasing foreign goods, hence incentivising domestic consumers to purchase UK-produced goods instead.

Question 2

Before removal of tariff

P1

Answer 2

• Before the removal of the tariff, the import market in the UK is characterized by a higher price due to the tariff.
• As a result, the quantity of imports demanded is lower (‘Imports 2’) than it would be if the tariff were not in place (imports 1).
• Because of this, the higher price also reduces the quantity supplied by foreign producers (from Qs1 to Qs2).
• The gap between the quantity demanded and the quantity supplied represents the tariff revenue collected by the UK government. (The gap between Qs2 and Qd2)

Question 3

After removal of tariiff

P2

Answer 3

• When the tariff is removed, the price of imports falls, resulting in an increase in the quantity of imports demanded (from imports 2 to imports 1) and an increase in the quantity supplied by foreign producers (from Qs2 to Qs1).
• The increase in the quantity of imports leads to a rise in the volume of imports into the UK.
• The extent of the change in the volume of imports will depend on several factors, including the size of the tariff, the price elasticity of demand and supply, and the competitiveness of foreign producers relative to domestic producers.

Question 4

Draw Tariff diagram

Answer 4