Question

Switzerland (a small country) imposes an import tariff on Belgian chocolates. In the graph provided, represent the domestic chocolate market in Switzerland. Clearly mark the following: Local demand and supply for chocolate, Belgian price with and without tariff. 4. Label the different areas in the graph and identify the following based on your labels: . Market price:_ Swiss market for chocolate Quantity bought: Quantity sold by domestic sellers: $20 $18 $16 $14 . Import quantity: . Consumer Surplus: (Domestic) Producer Surplus: . Tariff revenue: $12 S10 Deadweight loss:-- Efficiency loss: . $6 S4 $2 Why is the tariff a bad idea? Explain efficiency loss and deadweight loss. so 0 10 20 30 40 50 60 70 80 0

Answer 1

Swiss market for chocolate Supply $20 sDemand $16 $14 $12 Market Price $10 Consumer Surplus $6 S4 $2 so Price+tariff Prod. Sur / DWL Tarf. Reve DWL Price+without tariff o 10 20 30 40 0 60 70 80 9

Market price: $ 6
Quantity bought: 60
Quantity sold by domestic sellers: 20
Import quantity: 40
Consumer Surplus: = 0.5*60*(18-6) = 360
Producer Surplus: =10*2+(0.5*10*2)=30
Tariff Revenue = 40*2 = 80
Dead weight loss = (0.5*10*2)*2 = 20
Efficiency loss = 20

A tariff leads to imperfect competition between domestic and foreign producers which would make the domestic producer to be inefficient ultimately leading to increased prices for consumers

Dead weight loss is an economic loss that would occur when the market is not under free condition which would lead to inefficiency and economic loss