Import Tariff

1
Import Tariff

• Tax on imports
• Volume of imports falls
• Demand for domestic produce increases
• Domestic price rises by amount of the tariff
• Ad valorem or specific
• (or combination of the 2)
• Many EU tariffs are specific or mixed

2
Import Tariff

• Change in PS a
• Change in CS - (abcd)
• Change in GR c
• Total change in welfare -b-d

3
Import Quota

• Restricting imports with regulation
• Domestic price can be increased
• Main differences from tariffs are revenue and
  welfare effects
• Quota rent accrued to exporting country
• Protects domestic market against instability from
  the world market

4
Import Quota

• Change in PS a
• Change in CS - (abcd)
• Change in GR c
• Total change in welfare -b-d

5
Deficiency Payment

• Particularly attractive to importing countries
  wishing to maintain cheap food prices for
  consumers
• It is possible to limit exposure to the
  Government by setting a ceiling on the max amount
  of production that will be supported

6
Deficiency Payment

• Change in PS a
• Change in CS 0
• Change in GR - (ab)
• Total change in welfare b

7
Recommendations

• Rank policy instruments according to economic
  cost
• Should choose policy that minimises economic cost
• Colman and Young DW / change in PS
• Import tariffs and quotas have negative unit
  transfer cost, so are preferable to deficiency
  payments
• Quotas protect against world market instability
  but cannot offset domestic instability
• Recommendation impose an import tariff