Question

Explain what a tariff is and how economic theory explains how it impacts the supply curve. Provide an example.

Answer 1

A tariff can be defined as a few on imports that is levied by the government. Tariffs can be of many types but generally it is "specific type", i.e fee imposed on per unit of a good. Tariff is generally imposed to reduce the quantity of imports of a particular good in a country.

For example- The U.S government wants to reduce the imports of chineese toys as the cheap imports are making things miserable for US toy producers as they can not produce the toys at such cheap rates. Therefore, the government imposes a tariff on chineese toys. Now the supply of the toys from china will reduce and supply curve will shift to the left,