[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

restrict the importation of goods. Policies directed at affecting either imports or
exports are referred to as commercial policies. This and the next section examine
the forms that trade barriers take, their economic costs, and their economic and
political rationale. The final section explores international attempts to reduce them.
There are five major categories of trade barriers—tariffs, quotas, voluntary
export restraints, other nontariff barriers, and a set of so-called fair trade laws that,
by and large, actually serve to impede trade.
TARIFFS
Tariffs are simply a tax on imports. Since a tariff is a tax that is imposed only on
foreign goods, it puts the foreign goods at a disadvantage and discourages imports.
Figure 19.4 shows the effect of a tariff: a downward-sloping demand curve for
the product, and an upward-sloping domestic supply curve. For the sake of simplicity,
we consider the case of a country sufficiently small that the price it pays for a
good on the international market does not depend on the quality purchased. In the
absence of a tariff, the domestic price is equal to this international price, p*. The
country produces Q s , consumes Q c , and imports the difference, Q c – Q s . When a
tariff is imposed, the price that consumers have to pay is increased from p* to p* +
t, where t is the tariff. Domestic production is increased (to Q′ s )—producers are
better off as a result. But consumers are worse off, as the price they pay is increased.
Their consumption is reduced to Q′ c . Since production is increased and consumption
reduced, imports are reduced; the domestic industry has been protected against
foreign imports.
Quantifying the Losses to Society from Tariffs We can
quantify the net loss to society caused by tariffs. The difference
between the amount consumers are willing to pay and what they
have to pay is called consumer surplus. For the last unit consumed, the
marginal benefit exactly equals the price paid, and so there is no
consumer surplus. But for the first units consumed, individuals
typically would be willing to pay far more—reflected in the fact that
the demand curve is downward sloping in Figure 19.5. Initially, the
consumer surplus is given by triangle ABC, the area between
the demand curve and the price line, p*. After the price increase, it
is given by the triangle ADE. The net loss is the trapezoid BCED.
But of this loss, the rectangle BDHF represents increased
payments to producers (the increased price, BD, times the
quantity that they produce), and HFGE is the tariff revenue of the
government (imports, HE, times the tariff). A portion of the increased
payments to domestic producers covers the cost of expanding production.
The rest represents a difference between price and the
marginal cost of production—increased profits. This is the area
BIHD. Thus, the societal loss is represented by two triangles, EGC
and HFI. The triangle EGC is similar to the loss to consumers arising
from a monopolist’s raising his price. The triangle HFI is a waste
PRICE (p)
p* + t
p*
A
D
B
Figure 19.5
I
H
F
E
G
QUANTITY
Supply
curve
C
Demand
curve
QUANTIFYING THE NET LOSS TO SOCIETY FROM
IMPOSING TARIFFS
The societal loss from imposing tariffs is represented by the
two triangles, EGC and HFI.
TRADE POLICIES ∂ 435