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International Trade

Tariffs on Imports



Tariffs on Imports

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Alright, So now let's bring in taxes into the whole mix of international trade and see what happens. So, when we add taxes into this situation, what we're gonna be doing is adding tariffs on imports, right? When we talk about taxes in an international trade situation, we're gonna be talking about tariffs, which is just a tax on imported goods, right? So if if some other country wants to import something to our country, they're gonna have to pay a tax to import it here, Okay? So we're gonna see is that these tariffs are gonna impede on free trade, right? They're gonna add this layer uh that that's gonna impede on free trade, but on the positive side, it's gonna provide some tax revenue to the government, right? That's why it's kind of done is to provide this tax revenue. So, let's go ahead and look on this graph where we have the situation where we would be importing, right? We have a low world price. So the suppliers domestically don't want to fill the demand that that the consumers have at this low price, right? So we're gonna be importing goods from overseas to fill that demand. And that's what we saw in the previous video, right? So we've got our domestic supply, our domestic demand. I'm gonna scroll down just to have this space, and we're gonna see that we had this world price here, right. This was the low world price that leads us to have imports, right? So before we get to the tariff, let's just remind ourselves of the situation, when we have a low world price, right? We're gonna have uh this right here where it touches the supply curve, This would have been the domestic quantity supplied um when we have the low world price. Right? So we haven't even brought in the tariff yet and here would have been the quantity demanded domestically. Right, We have this large gap, a lot more quantity demanded than quantity supplied, right? And we saw that we had this big amount was going to be imported, right, this was the imports, uh I'm gonna say before tariff, okay, so we had this big amount of import before the tariff and now we're gonna uh we're gonna add the tariff into the situation. So what's gonna happen if someone wants to import something to come into our country, what's gonna happen is that there's gonna be this world price, right? The price that's gonna be sold plus the tariff. Right, so what's it gonna do? It's gonna increase the world price or I don't want to say, increase the world price. What I want to say is it's gonna because the world price in other countries, right, is still gonna be the world price. The tariff only exists in our country. So what we're gonna see is we're gonna have the world price plus the tariff, Right, so I'm gonna put that here, World price plus tariff. It's gonna increase it um by that amount there. Right? So this amount between these two curves, that is the amount of the tariff, right? That that is the amount of the tariff between there. So what's gonna happen here to our quantity supplied in our quantity demanded? So now domestically in our country, there's this higher price, right? There's not this world price anymore, there's this bit higher price. And this allows our domestic suppliers to supply a little more than they were before. Right? So they had this quantity supply before, but now at this higher price they're willing to supply a little bit more. Right? So our domestic suppliers don't have to pay the tax, there's no tax to them, right? What they have is a higher price, making them more competitive with the foreign suppliers. So this new quantity supplied, I'm gonna put Qs and I'm gonna put a t. Next to it because this is this quantity supplied with the tariff. Okay, so quantity supplied with the tariff and the quantity demanded with the tariff is gonna be over here. Alright, we've got the quantity demanded with the tariff. So what has it done? It's brought them a little closer together, right? It's reduced the amount of imports. So in this case the imports is going to just be this distance between these two. Right? The new imports is gonna be this smaller amount imports with tariff. Right? So we've got a smaller amount of imports because the domestic suppliers are now will to supply some and the quantity demanded has also decreased, right? So we're gonna have less imports here, and now let's go ahead and see what happens to our consumer surplus, producer surplus, government revenue. Let's see what happens in all with all of this stuff here. So I'm gonna go ahead and label the graph here, the sections we've got a we have B. C. This little triangle will be D. E. F. And then we'll have G over here. Cool. So we've got a lot of little sections here. Let's go ahead and see what is what. So first let's talk about before the tariff right before we added the tariff, we saw what happens, we're gonna have this big surplus, right for the for the consumers um and the small surplus for the producers. Right? So before the tariff, everything above the price, which was the world price, but below the demand curve. So we see this huge area here, this was all um consumer surplus, right? So we see consumer surplus was A A plus B plus C plus D. Plus E plus F. Right? They have all those sections were part of the consumer surplus. Now again, I hope you're not shading it in yet, because we're gonna erase and re shade um Once we get to the after tariff, right? We already seen this graph previously when we just talked about imports. So now what we want to focus on is what's gonna happen once we add the tariff. So we see that this little section G. Is gonna be a producer surplus, right? Everything below the price, but above the supply curve. So G. Is going to be our producer surplus and we see our total surplus is A. B. C. It's everything right? Plus D. Plus E plus F plus G. Everything is surplus there, there's no tax before we add the tariff, right? There's no tax. So there's no government revenue and there's no dead weight loss. All right, so you see that we're gonna talk about dead weight loss here, right? Every time we add a tax there's gonna be dead weight loss, the tax is going to impede on all the trades that wanted to be made, it's gonna stop some of those trades. So we're gonna have dead weight loss. So let's go ahead and see where that dead weight loss is gonna be. I'm gonna erase this and let's go ahead and relabel these sections. Right? So let's start here with our consumer surplus. Our consumer surplus, everything above the price, but below the demand curve. So we're going to see that the new price, right, is this amount with the tariff? And we're gonna see that the consumer surplus has gotten a little smaller right now, it's just this section A plus B. So they're making less trades, there's less consumer surplus, right? Because the quantity demanded went down the price went up, they've lost some of their surplus and let's go ahead and see what happened to producer surplus. So the producer surplus it's gonna be everything below the price but above the supply curve. Right? So in this case below the price, right here, above the supply curve right here and it's gonna end right there. Right. So the producer surplus has increased a little bit, right? Because we saw that the domestic producers at this higher price when the tariff got added in, they are willing to supply more. So they were able to grab a little more surplus here. And we see that they have the section C plus G. Right? So back to consumer surplus, we saw that they lost sections C. Plus D. Plus E. Plus F. Right. They law all of that. And what the consumers were able to excuse me? The producers were able to snag c. Right. They got part of that. They got the C. So what happened to the D. The E. And the F. Let's go ahead and see what happened there. Let's get total surplus. And let's go to government revenue. Right. So government revenue, where do you think the government revenue is going to be in this graph? So we've got a few sections here left. And remember the government is only taxing the imports. Right. So where are we gonna see this government revenue? Well the imports, are this section right here, Right between this line, right? That line represents the imports, right? The difference between the quantity supplied with the tariff and the quantity demanded with the tariff and what's the amount of the tariff? Well, it's the this this length right here, Right? It's the distance between the world price and the world price plus the tariff. So that's the amount of the tariff. So you're gonna see that section E. Right? That's going to be our government revenue right there. So they're gonna, the tariff times the amount of imports is gonna give us right there amount of revenue. So that's gonna be section E. So there's where our E. Went. What happened to D and F. So let's talk about dead weight loss. And I have a confession to make to you guys. I hope that you'll give me your sincerest uh you accept my apology here. Right. So, I lied to you previously when I taught you about the bowtie of deadweight loss. When I talked about dead weight loss before I told you it was always going to be in that bow tie, right? Either on that left side or that right side. Well, it was a little white lie to get you this far. Okay? So now that we're here, I'm coming clean and I'm gonna tell you that we can have deadweight loss in other places. All right. And this is luckily in your course, this is the only time it's gonna show up somewhere else. So, we're talking about international trade. This is where we're gonna see the deadweight loss, we're gonna have what I call the bridge the bridge of dead weight loss. Okay, in this situation we've got the bridge of dead weight loss, not the bow tie. Right? So it makes sense to we've got the bridge because we're talking about international trade, we're bridging, you know, the gap between nations something something just make it work for you, Right? Bridge of dead weight loss. So, this is where our dead weight loss is gonna be. I'm gonna do it in blue here. So, we're gonna have this section D. Right? And we're gonna have this bridge across to section F. Right? So this blue represents the bridge of dead weight loss. It's gonna include section F. Right here. And section D. That is going to be our dead weight loss. I'm going to fill those in a little better. So you can see it kind of makes a bridge there, right? And section D. And F. Are gonna represent our dead weight loss and I guess I'll go ahead and fill this in with yellow for our government revenue just to have them all filled in. All right, So D. N. F. End up being our dead weight loss. And you can kind of see this bridge that gets formed right with the D. And the F. And this little section up here. That's the bridge in between D. And F. Alright. So D. Plus F. Ends up being our dead weight loss here, and that's because the tax has impeded on some of the trades that would have happened had they not put in the tariff. Right. So in this case D. Plus F. That's our dead weight loss. I'll get out of the way, just so you see behind me, so you'll see that dead weight loss increased by D. Plus F. Right. So there we go. We see where all of the sections have gone that consumer surplus lost. They've been picked up by the producers, the government and some of it was dead weight loss. Right? So what's gonna be our total surplus now? Well, it's gonna be a plus B plus C plus E. Right. The the government revenue is surplus. Right. The government it's not that we lost that the government just collected it uh and it's going to distribute it through its services that it provides. Right? So we're gonna see that we've lost from our total surplus minus out D. Plus F. Right, and that is the deadweight loss, that's what we've lost is the amount that went to the deadweight loss. Alright, so let's go ahead and do these little conclusions I have down here about the tariffs. So we'll see that the tariff is gonna cause consumer surplus to decrease and producer surplus to increase. Right? We've seen the producers get a little piece of that of that pie. And as we see with all taxes the tariff has created a deadweight loss. Right? But as with all taxes it also provides the government with some revenue here behind me. Right? So it's gonna provide the government with some revenue as well. Cool. So let's go and say one last thing about tariffs down here. So these are the two types of tariffs, Like the two reasons why a government might impose a tariff. The first one is just a revenue tariff, right? That makes sense. They need to make some money, so they're just gonna tax imports and they're gonna get some revenue. Right? So, a revenue tariff, it just provides the government with some tax revenue. And the other type of tariff is a protective tariff. Right? So what have we seen happen when we put in this tariff, we increased producer surplus, right? It brought the price up so that the domestic suppliers were able to compete in the market a little better. Right? So what is it doing? It's protecting these, these domestic suppliers, right. The domestic producers, it's defending them from the foreign competition. The foreign competition came in and this really low price and our suppliers, our industries were like, hey, we can't compete with this price. Right? So what what ends up happening is that these producers end up lobbying to government and get these tariffs put in place saying, oh, we're gonna lose our jobs, we're gonna lose these industries if you don't this tariff in and protect us. Right, So this protective reason is another reason we're going to see a tariff. Cool. Alright, so that's pretty, pretty hefty stuff, right? A lot of a lot of information there about tariffs, about imports. So I hope you got it all there. Um let's go ahead and move on to the next video.

If a nation imposes a tariff on an imported good, it will increase


Which of the following trade policies would benefit domestic producers, hurt domestic consumers, and increase the amount of trade?


A tariff on imports benefits domestic producers because