Question

Suppose Country X exports good A and imports good B. And, Country Y exports good B and imports good A. When country Y imposes an import tariff, what happens to the terms of trade in these countries and what is the impact of this on economic welfare (assume no other factor determines economic welfare).

Answer 1

Import of Goods from one country to another company impacts

• If the country imports more than its exports it will run as trade deficit
• If it import lessthan its export it create trade surplus
• When a country has a trade deficit it must barrowed from the other contries to pay for extra imports
• Country should not continew to borrow to finance its trade deficit
• Imports make a country depends on other country political and economic power
• Contries with high import level must increase their foreign currency reserve

Export of Goods from one country to another company impacts

• Most of the contries wants to increase their exports
• If they've all they can do their own country popolation then they can want to sell overseas as well
• The more they export grater their competative advantage
• Goverment encourage the export
• Export also increase the foreign exchange reserve held with the nation's central bank
• Contries also use currency reserve to manage liquadity

Tariff On importaion of goods

In contries point of view

• The aggregare welfare effect for the countries is found by the gain and loss for the consumer, producers and goverment
• Large country implementing small tariff it will raise national welfare
• If the tariff is too high it will fall the economy
• Positive optimal tariff will maximise national wefare  

In Goverment point of view

• The goverment receive tariff revenue as a results of tariff
• Who's benefit from the revenue depends on how the goverment spend on it
• Revenue is simply included as part of general funds collected by the goverment by various sources
• This funds help the goverment to implement various goverment programme to public

*****Note impacts also mentioned above so only i seperately not mentioned