DEFINITION

- Taxes imposed on imported goods.

- a.k.a ‘custom duties’
 Two purpose of tarif f
 Protect a domestic industry from foreign competition.
 Imports will be unattractive because of the high price.
 Domestic products will be demanded.
 Raise revenue for the government.
 EFFECTS OF TARIFF

 Quantity supplied ↑ , quantity demanded ↓ , quantity of

imports ↓

 Domestic consumers are worse of f.

 Domestic producers are better of f.

 Domestic employment increase.

 The government gain tariff revenue.

 EFFECTS OF TARIFF

 Domestic income distribution worsens.

 Because tariff is a type of regressive tax
 burdens people with lower income, compared to those with higher
income.
 Increased inefficiency of production.
 The increase in domestic output represents an increase in production by
relatively inefficient domestic producers
 Producers produce more than what is demanded.
 Resulting in waste of scarce resources (inefficiency )

 Decrease unemployment.
 To help increase production of domestic goods.
 EFFECT OF TARIFF ON CONSUMER AND
PRODUCER SURPLUS

 Loss of consumer surplus

 Increase of producer surplus.

 Dead-weight loss of welfare

 (surplus before tariff-surplus after tariff=deadweight loss)
 EXAMPLE

 1 March 2018, Donald Trump impose 25% tarif f on steel and

10% on aluminium imported.
 To increase U.S manufacturing jobs. Hence, reducing
unemployment.
 Tariff will raise costs for steel and aluminium users, llike
automakers.
 Consumers will have to pay higher for the autombile.