International Economics Analysis of a Tariff Session 8 Analysis of a Tariff Aj. Noom (anuphak@gmail.com) Tel.0835426434

Tariff Tariff is a tax on importing a good or service into a country, usually collected by customs official at a place of entry. A Specific tariff The money amount per unit of import An Ad valorem The percentage of the estimated market value of the goods when they reach the importing country

The U.S. Market for Bicycle with Free Trade Sd (Domestic Supply) Dd (Domestic Demand) World Price S0 = 0.6 D0 = 1.6 Import M0 =1.0

The Effect of A Tariff on Producer (Small Importing Nation) Increased Producer Surplus Sd (Domestic Supply) Producer Surplus Domestic Price with Tariff 330 World Price

The Effect of a Tariff on Consumers Consumer Surplus Dd (Domestic Demand) New Consumer Surplus Domestic Price with Tariff 330 World Price Lost Consumer Surplus D0 = 1.6

The Tariff As Government Revenue Sd (Domestic Supply) Dd (Domestic Demand) Government Revenue Domestic Price with Tariff 330 S1 D1 World Price S0 D0 Import with tariff Import without tariff

The Net Nation Loss from Tariff Increased Producer Surplus Sd (Domestic Supply) Dd (Domestic Demand) Lost consumer surplus Government Revenue Domestic Price with Tariff 330 S1 D1 World Price Deadweight Loss S0 D0 Import with tariff Import without tariff

One-dollar, One-vote Metric Every dollar of gain or loss is just as important as every other dollar of gain and loss, regardless of who the gainers or losers are. Consumers Lose What would happen if the customers are more important than the producer?

The Effect of A Tariff on Producer (Large Importing Nation) Sd (Domestic Supply) Dd (Domestic Demand) Domestic Price with tariff World Price

Paid by domestic importers Paid by foreign exporters Increased Producer Surplus Lost consumer surplus Government Revenue Paid by domestic importers Deadweight Loss Paid by foreign exporters

With small amount of tariff, the sum of deadweight loss is less than the tariff paid by foreign exporter. As such, the large importing country gain from impose the tariff.

World Price without tariff Price with tariff Exporter’s Price World Price without tariff