1. International Economics Analysis of a Tariff
Session 8
Analysis of a Tariff
Aj. Noom Tel

2. 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

3. 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

4. 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

5. 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

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

7. 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

8. 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?

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

10. 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

11. 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.

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