ECO 108 Lecture Notes - Lecture 20: Economic Surplus, Deadweight Loss
3 Aug 2018
School
Department
Course
Professor
Document Summary
Suppose we"ve realized that banning imports has these negative consequences, but producers are still lobbying for protection from imports, so congress tries something a little less drastic. They decide to discourage imports by imposing a tariff. A tariff is a sales tax on imports, without a corresponding sales tax on the same goods made domestically. Before the tariff is imposed, u. s. manufacturers have to match the world price. At that price, they"re willing to supply only qs . Meanwhile at that price demanders want to buy. Normally if demanders want more than suppliers supply, demanders bid up the price, but that won"t happen here because demanders satisfy themselves by buying imports. The quantity bought from foreigners, imports, is the difference between qd and. With no tariff, consumers are buying at the world price out to quantity qd. With the tariff, consumers pay the higher price for all cars and they choose to buy quantity q"d.
