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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

From the Work It Out “Effects of Trade Barriers,” you can see that a tariff raises the price of imports. What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically?

To determine

To find: The individuals who pay remaining tariff amount if import tariff price rises by less than the amount of the tariff.

Explanation

Protectionism refers to the policy of the government of a country restricting free trade for various purposes. Protectionism is practiced for protecting domestic producers and workers from foreign competition. It is generally followed by developing countries to shield small producers. An import tariff is a form of protectionism.

A tariff is a quantitative barrier to trade. In this case, the government imposes a cost on import of foreign goods that increases the import prices for those goods. A tariff has the effect of raising the domestic price of import good and reducing the quantity imported. Below is a diagram showing the effect of an import tariff on the domestic market for import good.

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