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Session 8

Session 8. Analysis of a Tariff. 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.

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Session 8

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  1. Session 8 Analysis of a Tariff

  2. Tariff Tariff is a tax on importing a good or service intoa 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 marketvalue of the goods when they reach theimporting country

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

  4. The Effect of A Tariff on Producer(Small Importing Nation)

  5. Increased Producer Surplus Sd (Domestic Supply) Producer Surplus 330 World Price Domestic Price with Tariff

  6. The Effect of a Tariff on Consumers ConsumerSurplus New ConsumerSurplus LostConsumerSurplus 330 World Price Domestic Price with Tariff Dd (Domestic Demand) D0 = 1.6

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

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

  9. 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 thecustomers are more importantthan the producer?

  10. The Effect of A Tariff on Producer(Large Importing Nation) Importing country Impose the tariff. Exporting country reduce the price.

  11. Sd (Domestic Supply) World Price Domestic Price with tariff Dd (Domestic Demand)

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

  13. 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.

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

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