Chapter 8 Analysis of Tariffsplus Appendixes C & D

Link to syllabus

Figure 8.2 page 147The effect of a tariff on producers

Figure 8.3 page 150Effect of a tariff on consumers

Figure 8.4 page 152. The net national loss from a tariff

U.S. tariff rates (McBrue)TM-37

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All RightsReserved.

U.S. Tariff Rates, 1860-1999

Page 106McC/Bruetext

Effective Rate of Protection

Effective rate of protection is an analysis of the protection given to an industry, taking into account not only the direct effect of tariffs helping that industry, but also the indirect impact of the nation’s tariffs on inputs into that industry.

Effective rate of protection = (v’-v)/v [x100], where v is international value added, and v’ is the domestic value added.

Effective rate of protection, page 155

So ERP = (v’ – v)/v = (99 – 80)/80 = 23.8%

Example of ERP calculations

Consider the industry that produces computers. Suppose there is onepurchased input, called chips. Both computers and chips can be importedSuppose the world price of computers is $1,500/unit, and that of chipsis $600, leaving $900/unit as the domestic value added.If there is a 20% tariff on computers, and free trade in chips, then theprice of the computer will rise to $1,800, allowing value added to rise to$1,200. ERP = (1200-900)/900 = 33%.If there is no tariff on computers, but a 25% tariff on chips, then chips Will cost $750, while the price of the finished computer stays at $1500,Leading to a reduction in domestic value added to $750, and ERP=(750-900)/900 = - 16%.If there is a 10% tariff on computers, and 33% on chips, then ERP =-6%If there is 30% tariff on computers, and 30% on chips, then ERP = 30%.

Figure 4.4 Specialization and Trade and Tariffs

(from Thompson: a different textbook. Not covered in Pugel)

Autarky: production and consumption at A.Free trade, production at P, consumption at T. Country exports S (services).With a tariff, production moves to P’ and consumption is at T’.Assuming world prices have not changed, T’ must correspond to a lower level of community indifference than T.

Figure 8.5 page 158 A large country imposes a small tariff

Fig. 8.5 p.

160. A

Large

Country Im

poses

a Sm

all

Tariff

Figure 8.6 page 16. Nationally optimal tariff

Figure C.1 (Appendix C)Derivation of Offer Curve

Page 676

Figure D.1 p. 676. How a slight tariff can be beneficial to a large country

Figure D.2 p. 678. Optimal Tariff

Problem #5 page 162.

w/tariff w/o tariff World Price $0.10 / lb. $0.10/lbTariff $ 0.02/lb 0Domestic Price $0.12/lb $ 0.10/lbDomestic Consumption 20 22Domestic production 8 6 Imports 12 16

Calculate:a) Domestic consumers’ gain from removing the tariffb) domestic producers’ loss from removing the tariffc) The government tariff revenue lossd) Net effect on national well-being