… a core concept in Economic Analysis and Atlas102
Click for MRU video, minute 7:42
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:
The decline in domestic consumption, leading to lost gains from trade
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.
Tabarrok summarizes with the points below, noting that the distributional effects have important political implications.
http://www.mruniversity.com/node/201843, accessed 5 May 2016.
Spend some time driving in Detroit, MI—the Motor City—and you’re sure to see bumper stickers with messages like “Buy American” or “Out of a job yet? Keep buying foreign!” or “Hungry? Eat your foreign car!” Explain these bumper stickers in light of what you’ve learned: Who is hurt most by imported automobiles?
American (domestic) consumers
American (domestic) car manufacturers
Foreign car manufacturers
Trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like “Out of money yet? Keep taxing foreign sugar!” or “Hungry? It’s probably because domestic sugar is so expensive!” Why?
Sugar is unhealthy and therefore it’s unpopular to lower its cost.
The sugar tariff benefits more Americans than it hurts.
The price increase of sugar per person is small.
None of the above.
Sugar farmers in Florida who use unusually large amounts of fertilizer to produce their crops do so because their land isn’t all that great for sugar production. If we translate this into the language of the supply curve, where would these sugar farmers be on the supply curve?
At equilibrium price
Indeterminate with the given information
There are three conditions that explain why a free market is efficient: 1. The supply of goods is sold by the sellers with the lowest cost. 2. There are no unexploited gains or wasteful trades. 3. The supply of goods is purchased by the buyers that place the highest value on the goods. Which condition or conditions cease to hold in the case of a tariff on imported goods?
A and B only
If the United States were to eliminate a tariff on, say, Mexican shirts thereby lowering its cost, which product might be purchased more by Americans?
All of the above
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.