Question

Suppose the Australian government imposes a tariff on imported wooden tables.

a) Who benefits and who loses from this policy?

b) Are the overall benefits or costs of the tariff greater? Explain your answer

Answer 1

A)Tariff will increase the domestic price of the good .

Increase in price will increase per unit Producer surplus compare to before. So producer surplus will increase and domestic seller will be benefited.

Increase in price will decrease per unit CONSUMERs surplus compare to before. So CONSUMER surplus will decrease and domestic CONSUMER loses.

Tariff also generate tax revenue,so Goverment also get benefit from this.

B) Increase in producer surplus and goverment tax revenue combined is lower than Decrease in consumer surplus. So overall cost his higher than benefit.