Import Tariff Tax on imports Volume of imports falls Demand for domestic produce increases Domestic price rises by amount of the tariff Ad valorem or specific –(or combination of the 2) Many EU tariffs are specific or mixed

Import Tariff Change in PS: a Change in CS: - (a+b+c+d) Change in GR: c Total change in welfare: -b-d P Q DS Pd Pw abcd Sw

Import Quota Restricting imports with regulation Domestic price can be increased Main differences from tariffs are revenue and welfare effects Quota rent accrued to exporting country Protects domestic market against instability from the world market

Import Quota Change in PS: a Change in CS: - (a+b+c+d) Change in GR: c Total change in welfare: -b-d P Q DS Pd Pw abcd Sw

Deficiency Payment Particularly attractive to importing countries wishing to maintain cheap food prices for consumers It is possible to limit exposure to the Government by setting a ceiling on the max amount of production that will be supported

Deficiency Payment Change in PS: a Change in CS: 0 Change in GR: - (a+b) Total change in welfare: b P Sw D S Pd Pw ab

Recommendations Rank policy instruments according to economic cost Should choose policy that minimises economic cost Colman and Young – DW / change in PS Import tariffs and quotas have negative unit transfer cost, so are preferable to deficiency payments Quotas protect against world market instability but cannot offset domestic instability Recommendation: impose an import tariff