Question

Q6) Please describe and explain the welfare effects of tariffs on consumers, producers, and the government.

Answer 1

Tariffs refer to the tax imposed by the government on the import of goods. this increases the price of the goods/commodity, and this leads to falling in the import of goods.

graph before tariff

1) Effect of tariffs on consumer surplus

Due to imposed tariff on goods will reduce the consumer surplus

2) Increase in Producer surplus.

Due to imposed tariff by government, imort of goods fall as price of commodity increases but at same time domestic producer can can sell their goods at higher price.

3) Goverment revenue increases.

Due to impose tariff, government revenue will increase

Graph after tariff

Welfare Effect = gain in producer surplus + gain in government revenue - loss in consumer surplus.

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