economics theme 4 : tariffs

tariff diagram

• price on y axis

• quantity on x axis

• world price + tariff is higher than the original world price

• low prices are a disincentive for producers

• production ceases at point Q (point of supply)

• consumers like low prices, demand is at Q3

• demand between Q to Q3 is met with imports

• the gov puts a tariff on imports which increases the price

• increased price increases incentive for producers

• increased price decreases demand

• welfare loss is the triangles

negatives of tariffs

• price increases for consumers

• industry not wholly protected

tariff defintion

tax imported on goods / services

quota definition

• a physical limit on imports

• limit is usually set below the free market level of imports