Question

Using the tariff diagram , discuss all the effects of a tariff imposition(analyze the four effects of it). Elucidate the reasons that a tariff can be harmful. However, explícate how not everyone loses as a result of it. Specify who loses and who gains from it. Be very thorough.

i 一十十一十一 于FF 一十十日。 十十十.…… 0 1 0 20 30 0 0 70 0 11 110 12 130 1411 Fig. 6-6

Answer 1

With the tariff, the price is 3

The tariff reduces consumer surplus as price increases

The tariff increases producer surplus as Price increases

The tariff generates government revenue

The tariff generates a deadweight loss

After the tariff:-

The CS decreases by the area JHBF

The PS increases by the area JMF

The government revenue from the tariff is the area MHRN

The deadweight loss generated is the area MNG + HRB

So, the loss in total surplus = area of the deadweight loss, therefore, total surplus decreases even though it increases or decreases surplus for either consumers or producers