Answer to Question #192424 in Economics for Anna

Question

Namibia import most of it's goods , and to encourage local production it can levy a tariff on imports.Discuss the effects of tariff on an importing country such as Namibia

Answer 1

The impact of the import tariff on the economy of certain countries is different and depends on the economic weight of the country, i.e. whether the country is small or large.

A country is considered small if the change in its demand for imported goods does not lead to changes in world prices.

about the start of trading.

Line Sd is a graph of the domestic supply of goods, line Dd is a graph of domestic demand. The country produces and consumes goods at point E, i.e. Q3 of goods at a price of Pd.

With free trade.

The world price of the product (Pw) is lower than the domestic price. The world supply of goods is unlimited at a price of Pw. The supply curve is represented by the line Sd + w. Equilibrium will be reached at point F, at which the volume of demand will be Q5, and the domestic supply will be Q1. Q1Q5 goods are imported. The domestic price of the product fell from Pd to Pw, local producers sell less goods on Q3Q1 than before the trade.

After the introduction of the tariff.

The domestic price of imported goods increases by the amount of the duty from Pw to Pw + t. The aggregate supply curve moves up to the Sd + w + t level. Equilibrium is reached at point G, at which domestic production increases by Q1Q2 and domestic consumption falls by Q5Q4. Imports are reduced to Q2Q4.

Before import tariffs were imposed, the consumption surplus was a + b + c + d + e + f + g.

As a result of the movement of the supply curve upward by the amount of the tariff, the surplus consumption was limited to the segments e + f + g. The loss of excess consumption was a + b + c + d. In general, as a result of the introduction of import duty, two groups of economic effects arise - redistributive effects (these include the effect of income and the effect of redistribution) and loss effects (the effect of protection and the effect of consumption).

- the effect of revenues is the amount of increase in budget revenues. Graphically, this effect is represented by a quadrangle c. The income effect does not represent a loss for the country's economy, but is a loss for consumers since their income is withdrawn by the state to the budget. There is a shift in income from the private to the public sector;

- the redistribution effect is the redistribution of income from consumers to manufacturers of products competing with imports and is graphically represented by a quadrangle a;

- the protection effect shows the economic losses of a country resulting from an increase in domestic production of goods at higher costs. At the same time, resources are used that are not specifically intended for the production of this product, which contributes to the expansion of inefficient industries. Losses to the economy are represented by triangle b;

- the consumption effect shows a reduction in consumption as a result of an increase in the price of goods in the domestic market. This effect is shown by the triangle d;

Thus, as a result of the introduction of a tariff in a small country, redistributive effects arise, which are the transfer of income from one economic entity to another and do not have a negative impact on the country's economy as a whole and the effects of loss. There is no positive economic effect leading to economic growth, so it is better not to introduce a tariff in a small country.