Question

Suppose that elimination of tariffs on agricultural products means that 1,000 farm workers lose jobs that pay an average of $20,000 per year. At the same time, because of the imporation of relatively cheaper foreign vegetables, 150 million consumers save $2 per year on their grocery bill.

Q: Which group is most likely to become politically involved over the issue of removing the tariff, the farm workers or the consumers? Why?

Answer 1

Total Ioss of income to Farmers = 1, 000*20,000

= $ 20 000 000 or

Total benefit to consumer = 300 million

Here benefits to consumers are greater than cost being borne by farmers.

But farmers are likely to become politically involved over the issue of removing tariffs. Farmers are being directly affected by the change in tariffs by the government. Further, farmers are relatively well organised. Hence, problem of free rider does not crop up here. conversely, consumers are being indirectly affected by change in tariffs. Further, these consumers are not well organised. Hence, free rider problem would be rampant here.

Tariffs directly affect jobs of farmers while consumers surpluses are affected by change in price. Thus, farmers would tend to protest the change in tariff policy.