Answer to Question #119617 in Macroeconomics for Sadia Islam

Question

Suppose the US government imposes a tariff on Asus graphics cards that are imported into the US. Explain the impacts (different groups of the economy will be affected) using diagrams. *

Answer 1

Tariffs are taxes on imports that are paid by the importer, but later passed to consumers which leads to increased prices for the goods . Higher prices mean people buy fewer imports, and are buyers willing to pay more for domestically produced goods. Tarriffs only work to the extent other countries don’t match them, but other countries do. Tarriffs also reduce overall welfare and efficiency.

• In figure above, the tariff is causes the price to rise from P1-P2.
• The tariff reduces the quantity demande from Q4-Q1. After the tariff, imports fall to Q3-Q2.
• Consumer surplus also falls by 1+2+3+4
• Government raises tariff revenue of area 3
• Domestic suppliers gain an increase in producer surplus of area 1
• The net welfare loss is (1+2+3+4) – (1+3) = 2+4