Net Welfare Costs of Protectionism

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video, minute 7:42

Concept description

Alex Tabarrok (reference below, video on right) analyzes the net welfare costs of protectionism.

A tariff has two effects that influence welfare, both of which generate net welfare costs:

  1. The decline in domestic consumption, leading to lost gains from trade
  2. The increase in domestic production, leading to wasted resources through higher cost production

Tabarrok demonstrates this with the example of sugar in the United States, where without tariffs, there would likely be no domestic production because the cost of growing sugar cane in Florida is much higher than in other countries with more suitable climate and lower land costs.

sugartariffSugarCostsTabarrok summarizes with the points below, noting that the distributional effects have important political implications.

TariffSummary

Practice questions

From http://www.mruniversity.com/node/201843, accessed 5 May 2016.

Atlas topic, subject, and course

Trade (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, Tariffs and Protectionism (15-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/tariffs-quotas-protectionism-definition, accessed 5 May 2016.

Page created by: Ian Clark, last modified 5 May 2016.

Image: Alex Tabarrok, minute 0.14 of Tariffs and Protectionism (15-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/tariffs-quotas-protectionism-definition, accessed 5 May 2016.