Rationale of Tariff Barriers
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Name and explain the concept of tariff barriers and name and explain one reason countries maintain trade barriers, such as tariffs, and state whether or not this reason is justified and why or why not. What is the impact of these barriers on the efficient allocation of a country's resources? What is the impact on the consumers that purchase the items to which the barriers apply?
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The solution discusses the rationale and concept of tariff barriers.
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Name and explain the concept of tariff barriers and name and explain one reason countries maintain trade barriers, such as tariffs, and state whether or not this reason is justified and why or why not.
A tariff is a tax on imported goods. Tariff aims to increase the selling price of imported products and increase the demand for locally produced one. It intends to eliminate competition.
Countries, specifically developing ones, need to protect their local industries. One way to do this is by implementing tariffs.
For example, a country is starting to develop it car industry using the local materials that it has. The selling price of the car is $100,000 each. At this price, the car industry survives because it is the only car supplier locally. Now, an imported with the same quality and selling price threatens to target the local market. To avoid the imported car to unduly compete locally, the government import regulatory body needs to charge imported product with, say, a 100% tariff. With that tariff, the price of the imported product would then double the price of the locally produced car at $200,000 ($100,000 x 100% tariff = $200,000). ...
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