Question

Minimum of three sentences, please.

1. How are tariffs equivalent to a devaluation?

2. How do tariffs affect consumers?

Answer 1

a) Devaluation of the local currency will reduce the purchasing power of the local currency and make the imports costlier in the market, it will reduce the incoming imports. The foreign goods will not be as competitive as they were with a depreciated or a devalued currency. People will buy less.

Tariff does the same but it artificially increase the cost of the imports and decrease the purchasing power of the local consumers, With a tariff in place people will buy less just as they will when the currency has devalued.

b) Tariff on the imports increases the price of the goods in the market, At a higher price the consumer's purchasing power declines and they will be demanding less of the imported goods, it will decrease the consumer surplus in the market and increase the producer and dead weight loss.