MRU - Tariffs and protectionism
- Protectionism: the conomic policy of restraining trade through tariffs, quotas o other regulations that burden foreign producers but not domestic producers.
- Tariff: a tax on imports.
- Quota: restriction on the quantity of goods that can be imported.
- A tariff has two effects that influence (reduce) welfare:
- Domestic consumption falls: lost gains from trade.
- Domestic production increases: wasted resources from higher-cost production.
- The revenue doesn't affect the net welfare, as it goes to the government.
- Tariffs increase prices to consumers so domestic consumption falls, which creates a deadweight loss
- Tariffs divert production from low-cost (world) producers to high-cost (domestic) producers and this wastes resources.
- Distribution of losses and gains:
- Bad for consumers
- Good for domestic producers
- Bad overall