Question

using the diagram, explain the effects of tariff on international trade, and evaluate the main arguments against and for international trade.

Answer 1

Following effects of Tariffs:

When tariff is increased, price increases from P1 to P2, So it reduces the consumption of goods and services. So the There will be loss of Surplus.

Argument in favor tariffs:

• It saves the employments by restricting import and increasing domestic output.
• it creates revenue for government.
• Domestic industry are protected against foreign competition. So economy becomes less vulnerable.

Argument against tariff:

• it restricts output or import, so consumer surplus decreases.
• Economy becomes less competitive. so future outcomes might be undesirable.
• Inflation rate might rise due to rise in cost of production.