Tariff
12
Market for Plywood Price of Plywood Quantity of Plywood e Domestic = $10.00 Supply* Demand* Qe Qs=Qd 1,000 “A” www.haywardeconblog.blogspot.com A CLOSED ECONOMY that does not trade with foreigners is said To be in a State of Autarky. In this state the Domestic Market Price is Pe= $10.00 and the Domestic Market Quantity is “Qe = 1,000”
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Tariff
Transcript of Tariff
Market for PlywoodPrice ofPlywood
Quantity of Plywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
“A”
www.haywardeconblog.blogspot.com
A CLOSED ECONOMY that does not trade with foreigners is said To be in a State of Autarky.
In this state the Domestic Market Price is Pe= $10.00and the Domestic Market Quantity is “Qe = 1,000”
Market for PlywoodPrice ofPlywood
Quantity of Plywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
“A”CS
PS
The boxes show the Areas ofConsumer Surplus (CS) andProducer Surplus (PS) when a Market is in Equilibrium.
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”CS
PS
“B” “C”
Assume the Price of Imported Plywood is $5.00 (“P1 World”)
At $5.00 the Domestic Quantity SuppliedDECREASES from 1,000 to 500 (Law of Supply) Point “B”.
At $5.00 the Domestic Quantity Demanded INCREASES from 1,000 to 1,500 (Law of Demand) Point “C”
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
IMPORTS1,000
“A”CS
PS
“B” “C” The Difference betweenDomestic Quantity Supplied (500)and Domestic Quantity Demanded (1,500) will be made up with IMPORTS of 1,000.
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS
IMPORTS1,000
CS
Additional Consumer Surplusas a result of opening up to trade are the areas designated by: CS
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PSIMPORTS
1,000
P2 W +T = $8.00“E”“F”
Assume Domestic producersLobby and get a Tariff of $3.00 imposed on Plywood. This will Increase the price from $5.00 to$8.00---”P2 w+ T”. Note the pricedoes not return to $10.00. Don’t want to be too greedy!
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS
IMPORTS1,000
P2 W +T = $8.00“E”“F”
Because the Tariff caused a change In PRICE, then the Market will move Along its respective curves.
Quantity Supplied will increase from “B” to “F” (Law of Supply)
Quantity Demanded will decrease From “C” to “E” (Law of Demand)
CS CS
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS CS
IMPORTS500
P2 W +T = $8.00“E”“F”
Qs Domestic
750
Qd Domestic
1,250
Two things happen here:
(1) Imports DECREASE to 500(2) We lose areas of Consumer Surplus (The Black Boxes with (?))
What happens to those areas of CS isA BIG DEAL!!
The next slides tell that story.
???? ?
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS CS
IMPORTS500
P2 W +T = $8.00“E”“F”
Qs Domestic
750
Qd Domestic
1,250
PS
There is an INCREASE in ProducerSurplus as domestic producersIncrease their Quantity Supplied, Moving ALONG the Supply* From Point “B” to “F”.
PS
www.haywardeconblog.blogspot.com
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS CS
IMPORTS500
P2 W +T = $8.00“E”“F”
Qs Domestic
750
Qd Domestic
1,250
PS “DWL”“DWL”
This area (a triangle) is DEAD WEIGHT LOSSto Consumers as a result of the Tariff.Prior to the tariff, Consumers “enjoyed”an additional 250 pieces of Plywoodat the lower price of $5.00. They can No longer consume plywood along the Demand Curve between Point “E” and “C”.
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS CS
IMPORTS500
P2 W +T = $8.00“E”“F”
Qs Domestic
750
Qd Domestic
1,250
PS “DWL”“DWL”
This area (a triangle) is DEAD WEIGHT LOSSto SOCIETY as a result of the Tariff.
Scarce societal resources were used to producean additional 250 units of Plywood ONLY because of the imposition of the Tariff.
In other words, domestic resources were employedat a higher cost to produce a quantity of a good thatcould have been imported for a lower price.
OPPORTUNITY COST!
Market for PlywoodPrice ofPlywood
Pe Domestic = $10.00
Supply*
Demand*Qe
Qs=Qd1,000
P1 World = $5.00
Qs Domestic
500
Qd Domestic
1,500
Quantity of Plywood
“A”
“B” “C”
CS
PS
CS CS CS
IMPORTS500
P2 W +T = $8.00“E”“F”
Qs Domestic
750
Qd Domestic
1,250
PS “DWL”“DWL”
These 2 Areas (Squares) represent the area of Tariff Revenue to the Government.
If you take the tariff of $3.00 and multiply it buy the Amount of Imports (500) you will get $1,500.
T.R T.R
