Import Tariff

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					             Import Tariff
•Tax on imports
•Volume of imports falls
•Demand for domestic produce increases
•Domestic price rises by amount of the tariff
•Ad valorem or specific
   –(or combination of the 2)
•Many EU tariffs are specific or mixed
                              Import Tariff
 P



              S       D
                                          • Change in PS: a
 Pd
                                          • Change in CS: - (a+b+c+d)
                                          • Change in GR: c
      a   b       c       d
Pw                                   Sw

                                          • Total change in welfare: -b-d




                                 Q
                  Import Quota
• Restricting imports with regulation
• Domestic price can be increased
• Main differences from tariffs are revenue and welfare
  effects
• Quota rent accrued to exporting country
• Protects domestic market against instability from the
  world market
                          Import Quota

 P


              S       D                • Change in PS: a
                                       • Change in CS: - (a+b+c+d)
 Pd
                                       • Change in GR: c
      a   b       c       d
Pw                                Sw

                                       • Total change in welfare: -b-d




                              Q
             Deficiency Payment
• Particularly attractive to importing countries wishing to
  maintain cheap food prices for consumers
• It is possible to limit exposure to the Government by
  setting a ceiling on the max amount of production that
  will be supported
                     Deficiency Payment

     P
                 S
                      D
                                • Change in PS: a
                                • Change in CS: 0
                                • Change in GR: - (a+b)
 Pd

         a   b
Pw                         Sw
                                • Total change in welfare:
                                      b
              Recommendations
• Rank policy instruments according to economic cost
• Should choose policy that minimises economic cost
• Colman and Young – DW / change in PS
• Import tariffs and quotas have negative unit transfer cost,
  so are preferable to deficiency payments
• Quotas protect against world market instability but
  cannot offset domestic instability

• Recommendation: impose an import tariff

				
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