Restrictions on Trade - Tariffs

What is meant by a tariff?

• A quantitative restriction on trade

• A qualitative restriction on trade

• A tax raised on imports

• A payment by the government to firms facing imports

What are the quantity of imports before and after a tariff is applied?

• Before: 0Q2 - 0Q1

  After: 0Q4 - 0Q3

• Before: 0Q4 - 0Q3

  After: 0Q2 - 0Q1

• Before: Q2 - Q1

  After: Q4 - Q3

• Before: Q4 - Q3

  After: Q2 - Q1

What was the value of imports before a Tariff is applied?

• Q3, c, d, Q4

• O, b Q2, P no tariff

• a, b, Q2, Q1

• O, P no tariff, a, Q1

Which is the INCORRECT answer below?

• A tariff will raise prices in the market for consumers

• A tariff will reduce the volume of imports

• A tariff will reduce the value of domestic output

• A tariff might lead to retaliatory measures by other governments

What is the area (s) representing the reduction in consumer surplus?

• Area 1 + Area 2

• Area 1 + Area 2 + Area 3

• Area 1 + Area 2 + Area 3 + Area 4

• Area 4

Answer explanation

Area 4 is the reduction in consumer welfare only and it is 1 + 2 + 3 + 4 that represents the total loss of consumer surplus

What is the increase in producer surplus after the tariff?

• O - Q1

• Area 2

• Area 1 + Area 3

• Area 1

Which areas represent the welfare loss created by the imposition of a tariff?

• Area 1 + Area 2

• Area 2 + Area 4

• Area 3 + Area 4

• Areas 1 + 2 + 3 + 4

Which of the following statements is INCORRECT?

• After a tariff is applied, the rate of inflation will rise as will government revenue but the balance of trade improves (c.p)

• Consumers suffer from raised prices, reduced real income and a loss of consumer surplus.

• Domestic firms benefit as they will export more, import less and increase output

• Economic growth will rise, unemployment fall, government finances improve but inflation will occur (c.p.)