Economic Policy ***Tariffs***

fee collected when goods or services cross the country’s borders Definition fee collected when goods or services cross the country’s borders country’s geographical border may be different from its customs border one of the oldest and most commonly used tools of trade policy.

Types of tariff import; export; transit; TARIFF TARIFF TARIFF COUNTRY

Types of tariff [cont.] ad valorem; ad spetiem (specific); compound; as a percentage of the value of the goods How to define this value? ad spetiem (specific); fixed amount for a certain quantity of the goods , e.g. 10 EUR per 1 tone compound; e.g. a percentage of the value but not less than a fixed amount for a certain quantity

Tariff classification classification of goods and relevant tariffs one-column multiple-column tariffs g o od s tariffs g o od s tariff preferences

Effects of tariffs redistribution – change of a consumer surplus (CS); a producer surplus (PS); a government surplus (GS) fiscal – income to the state budget protection – domestic producers against foreign competitors consumption – consumers have to pay more => buy less

Mechanism of tariffs Autarky = no foreign trade Free Trade CS CS PS PS Demand Price Quantity Supply P(H) Q Price Quantity Supply P(H) Q Demand CS CS PS P(W) Q1 Q2 PS Import

Mechanism of tariffs Free trade Protectionism CS PS CS PS GS Import P(W) Q1 Q2 CS PS Price Quantity Supply P(H) Q Demand Protectionism Cena Quantity Supply P(H) Q Demand CS P(W) + T Q3 Q4 PS GS P(W) Q1 Q2 Import