1、Chapter 8Analysis of a TariffMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Outline of chapter 8Whats tariff?The effect of a tariff on production The effect of a tariff on consumer The net national loss from a tariff The effective rate of protectionTheterms of trade effe

2、ct and a national optimal tariffMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.some questions about tariff?Do you think tariff will lower world well-being? why?Do you think tariff will lower the well-being of each nation or depend on? Why?Could you name some cases that t

3、ariff might be used for a nation?Besides tariff, what other ways do a nation choose nowadays to protect the market in reality?McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Whats tariff?Tariff : A tax on importing a good or service into a countrySpecific tariffand Ad val

4、orem tariffSpecific tariff: A tax on imports levied as a set amount of money per unit of imported productAd valorem tariff :a tax on imports levied as a percentage of the imported products value as the product reaches the importing country.McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All

5、Rights Reserved.The effect of a tariff on producersGain or lose by your intuition?gain : aMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.1 The U.S. Market for Bicycles with Free TradeMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Fig

6、ure 8.2 The Effect of a Tariff on ProducersMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The effect of a tariff on consumerGain or lose?Lose: a+b+c+dMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.3 The Effect of a Tariff on Consumer

7、sMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The tariff as government revenueHow many?cMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The net national loss from a tariffConsumers lose: a+b+c+d Producers gain: a Government collects: cNet na

8、tional loss from tariff: b+dMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.4 The Net National Loss from a Tariff in Two Equivalent DiagramsMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.What b and d tell us behind it?Why b and d is t

9、he loss of well-being?Consumption effect (d)Production effect (b)McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Consumption effect (d)The inefficiency caused by a tariff (or similar policy, like an import quota or an export subsidy) because the policy causes a reduction

10、in the domestic quantity demanded of the product. The loss of consumer surplus for those domestic consumers squeezed out of buying the product because the policy artificially raises the domestic price of the productMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Productio

11、n effect (b)The inefficiency caused by a tariff (or similar policy, like an import quota or an export subsidy) because the policy causes an increase in the domestic quantity supplied of the product. The waste of resources used to produce units with domestic production costs that exceed the worldpric

12、e (the world standard for production cost).McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The effective rate of protectionEffective rate of protection: Percentage by which the entire set of a countrys trade barriers raises an industrys value added per unit of output.Effe

13、ctive rate of protection= (v-v)/v Where:V: value-added after tariff V: value-added before tariffMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Case 1: the tarrif rate on the inputs and the final good is the same.Case 2: the tariff rate on the inputs is larger than the ta

14、riff on the final good.Case 3: the tariff rate on the inputs is smaller than the tariff on the final good. (figure 7.5)McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.5: Illustrative Calculation of an Effective Rate of ProtectionMcGraw-Hill/Irwin 2007 The McGraw-

15、Hill Companies, Inc., All Rights Reserved.For case 3, the effective rate of protection of bicycle industry=(v-v)/v =(99-80)/80=23.8%McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.exerciseCase 1: 5% for the tariff on the inputs and 5% for the bicycle, what is the effectiv

16、e protection now?Case 2: 5% for the tariff rate on the inputs and 2% for the bicycle, what is the effective protection now?McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.ConclusionsA given industrys incomes, or value added, will be affected by trade barriers on its input

17、s as well as trade barriers on its outputThe effective rate of protection will be greater than the nominal rate when the industrys output is protected by a higher duty than the tariff duties on its inputs.McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The terms of trade

18、effect and a nationally optimal tariffa nation with monopsony power ( a large country)What happens for the importing price when imposing tariff on importing good?McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.6 A Large Country Imposes a Small TariffMcGraw-Hill/I

19、rwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Consumer surplus Gain or lose? Which part? Lose: a+b+c+dproducer surplus Gain or lose? Which part? Gain: aGovernment Gain which part? Gain: c+eMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Who really pays th

20、e tariff? Is it the same case for the small country?Tariff is burden partly by domestic consumer and partly by foreign exporter when the importing country is a large country.Note: Tariffis only burden by domesticconsumer when the importing country is a small countryMcGraw-Hill/Irwin 2007 The McGraw-

21、Hill Companies, Inc., All Rights Reserved.The net effort on the importing large country-b-d+eFor a suitably small tariff imposed by a large importing country, the importing country gains national well-being, as e is larger than b+dMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Re

22、served.QuestionIs the higher tariff is better for an importing country?Prohibitive tariff Nationally optimal tariffThe tariff rate that creates the largest possible net gain in well-being for the country that imposes the tariff.McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reser

23、ved.The optimal tariff equals the reciprocal of the price elasticity of foreign supply of our importst* =1/ smThe lower the foreign supply elastictiy, the higher our optimal tariff rate.McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.discussion?From the perspective of the

24、 whole world, the optimal trariff is really optimal?McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 8.7 The Nationally Optimal TariffMcGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.exerciseTariff results in deadweight losses. Those deadweight losses are called the:consumption effect and the production effect terms-of-trade effect and the production effectterms-of-trade effect and the consumption effect.terms-of-trade effect and monopsony powe