Question

Relate a personal experience, that was affected by this intervention (tariffs), i.e. are you paying higher prices for certain consumer items; are certain consumer items more limited in supply, causing an increase in price because the demand for same has remained constant, or increased, causing a shortage of the consumer goods, etc. and comment on how this problem can be solved from a national economic and personal economic perspective.

Answer 1

Tariffs are the duty that are imposed on Imported products from foreign countries.These tariffs provide some kind of relaxation to domestic producers. Tariffs are those duties that are imposed by government to protect domestic producers from foreign competition. Due to imposition of this tariff domestic firms are able to charge more prices for their products along with increased production of output.

The maximum imported product in india is Oil as per my experience

When import tariff is imposed then price in importing country increases. As a result , producers gain in Importing country and losses in exporting country.On the other hand, Consumer losses in Importing country and gains in Exporting country.In addition, Government Import tariff gains revenue to the government. This Includes Consumer surplus, producer surplus and Government revenue.

As we know consumer surplus is the difference between value to buyer and price paid by the buyer, Graphically is the area below the demand curev (Dh) and above the prices (pw). On the other hand, Producer surplus is the difference between the price recieved by seller and cost to seller. Graphically, It is measured by the area below price (Pw) and above supply curve (Sh).

For an importig country, Cost and Benefit of Import tariff can be expalined by using below graph.

As per below graph, Import tariff increases domestic price but it reduces foregn export price. As a result, Domestic production rises from S1 to S2 while domestic demand falls from D1 to D2. As a result Import declines. Due to higher domestic price consumer price consumer surplus reduces by area ''a+b+c+d'' . On the other hand producer surlus rises by area ''a''. In addition, Government tax revenue increases by area ''c+e''. As a result, Net cost of tariff will be as below

CONSUMER LOSS - PRODUCERS GAIN -GOVERNMENT REVENUE

(a+b+c+d) -(a) -(c+e)

''b+d-e''

As per below graph, the area of triangle b and d represents efficiency loss , that arises because Import tariff distorts incentives to consumer and producer both. Infact, Production distortion los loss is represented by are ''b'' while consumer distortion loss is represented by area ''d''. The area of rectangle ''e'' represents ''TERS OF TRADE'' gain that arises because traiffs lowers foreign export prices.

Tariff SH a PE fu ht C @ Du Da Pi anty

The main point to be noed is thatIf importing country is a small country then, it will not be able be reduce foreign export price . As a result, there will be greater loss for the Importing countries.