In conclusion, we can see that a tariff can have more thanone ethical and other effects on the economy, both negative and positive. There is another positive effect in the form of governmentrevenue from the tariff. The tariff as explained earlier is essentially a taximposed on imports.
Taxes generate revenue for governments. With this revenue,the government will now have more money to invest into other avenues in theeconomy such as health care, education, workshops and programmes for skillbuilding to help the unemployed and even give subsidies to firms to increaseproduction. However, with a tariff in place, we will be boosting thelocal economy. Due to an increase in demand of local products due to importsbeing more expensive, companies will look to expand their business by employingmore workers and getting more efficient machinery to produce at a lower cost.Due to building of new factories and production plants in rural areas, thefirms will be creating more jobs for people thus reducing unemployment in thecountry. This helps as now more people can afford to buy goods for consumptionand usage. This will draw in more profits for the company.
However, there is anegative externality with expansion of businesses as this would lead todeforestation to build production plants and will also result in large amountsof air and land pollution due to more machinery usage. Tariffs affect an economy in two ways. A tariff is placed toincrease the price of imports to boost local production and to encourage theconsumption of local products. However, this could affect exports as well becauseother countries may be facing the same problem and hence will be putting theirown tariffs on goods.
This would therefore, affect exports since people will beless likely to demand our goods due to this tariff. This may result in domesticfirms trying to cut costs as they would want to export more for higher revenue.This may mean laying off workers and reduction of wages. This poses an ethicalconflict as human lives will be affected. Part DThe blue shaded region shows the consumer surplus which isthe difference in the amount consumers are willing and able to buy and theamount they paid for the good. The black shaded region below the consumersurplus is denoted as the producer surplus, which is the difference in theamount producers are willing and able to sell for and the amount they receive. After the tariff is implemented, the world price of panelsincreases to (Pw + t). This pushes the quantity demanded to Qd1 and thequantity supplied to Qs1.
This shows a far less difference between the twoquantities thus depicting a fall in the amount of imports. The pencil shadedregion shows the amount of government tax revenue earned due to the tariff.However, due to the tariff there is a dead weight loss shown by the twotriangles A and B where no one gains due to the tariff. In the diagram given we see the impact of a tariff. Initiallybefore the tariff is implemented, the local price of solar panels is at P* andthe quantity produced is Q*. The world price of solar panels which is denotedby Pw, is seen to be much lower than the local price of P*. Therefore, thequantity demanded for the panels is Qd while the local supply of panels isdenoted by Qs. The difference between these two quantities is the amount ofimports before the tariff is implemented.
Part CPart B The third method of implementing a trade restriction is touse subsidies. A subsidy is a grant provided by the government to reduce thecost of production for firms. This in a way, is the reverse of a tariff. Theuse of subsidies will push the cost of production for local firms down thusmaking local goods a lot cheaper than before. This in turn would result in areduction of the demand for imported goods and an increase in demand and supplyfor local goods. The only downside is that taxpayers who may not use this goodwill also end up paying for it as well as those who use it. Another method is the use of economic embargos. Embargos stopthe export and import to and/or from other countries.
Sometimes this may eveninclude the complete stop on all trade with a country for political reasonssuch as in the case of Serbia during the Yugoslav wars. In the context of the given source, one such method is to usea tariff. A tariff is a tax imposed by the importing country (such as the onedone by USA on solar panels) when the imported good crosses the internationalboundary. There are two types of tariffs namely, Protective Tariffs and RevenueTariffs. Protective Tariffs are used to make foreign goods more expensive thusencouraging consumers to turn towards local producers. In the case of USA, the35% tariff will result in consumers looking to buy from local solar panelproducer. The second type is known as Revenue Tariffs.
These are similar to atax and help the government gain revenue. Trade restrictions are artificial restrictions placed on thetrade of goods and/or services between countries. There are numerous ways inwhich a country can implement these restrictions.
