Pow ECTIONISM | (EFFECT oF A _Tagir Su + tariff ° ao oe o ‘Quantity of computers Referring to Figure 1 above, ssents the domes! demand for computers and Sy represent fers, In the absence of trade, the domes (b) When the country is open to foreign trade, it faces a perfectly elastic worid supply for computers Sw. That is, the country can import as m: computers as she wants al the prevailing world price P; . Note that domestic producers cannot charge a price above P; as consumers can easily switch to cheaper impors, free trade and al the price Py; domestic consumers will demand OQ of computers, of which OQ, is supplied by domestic producers end the remainder Q,Q3 imported from other countries. ~ 6) Free trade thus consumers are be price. However, 's the domestic price of computers from Ps to Pri off as they are able to consume more at a [ower and unemployment increases. (e) To protect the home industry, the government levies 2 specific tariff on computer imports, thus raising the supply curve tram Sw to (Sw + tariff } The price now increases from .f,,22..Pa. (9 ALP2,, domestic production increases tram OQ, to Os ; domestic buyers arg buying fewer computers — from OQ: to OQ. The tart has caused a fallin the, ammount, OF iespor se. Q,Q3 to QsQs (@) Since the price is higher_efter the tari, consumers are worse off as consumer surplus is reduced. The loss ia consumer surplus is equal to the areas (A* B+ C+D) The effects ofa tariff are classified into four effects; namely , the Redistibution Effect, the Protective Effect, the Revenue Effect and the Consumption Effect. (h) Redistribution Effect (Area A) = This is the transfer of consumer form of increased . predwce sp ss to the homé-praducers in the Protective Etfect (area 8) -- Area 8 represents the unnecessary higher marginal costs incurred in producing the extra QQ, of computers instead of importing trem cheaply at the non-tariff price of P;. Every ynit in this range could have bean imported at the price of Py but is now costing mare to be produced by domestic praducers. This is the protective effect that enables home producers to stay in business or expand production , instead of being pushed out by foreign competition. Revenue Effect (Area C) = This is the amount of import duties collected by the governme ‘Area _C represents the amount of consumer surplus that is transferred to the government as revenue, Consumption Effect (Area D) “This effect arises from the decrease in consumption ses consumption’ dua to the higher price brought on by the %(t) Deadweight Loss to Society (Arua & + Azad) The sum of the protective and the consumption effects equal the Geadweight loss of a tariff, 2. 2 loss in the consumer surplus not transferred to other sectors of the economy. TAbHUEE eanaytond there It Ina eheiemey Paths to Soci ce to ptlonion