Tariff Structure Of Industrialized Nations

• Less developed nations sometimes argue that the industrialized nations’ tariff structures discourage the less-developed nations from undergoing industrialization. How?

To understand the tariff structure of industrialized nations, it is important explain a nominal and an effective tariff rates. The nominal tariff rate is applied to the value of a finished product that is imported into a country. The nominal tariff rate is published in the country’s tariff schedule. The effective tariff is the nominal tariff of a finished product plus the nominal tariff applied to the raw materials or intermediate goods that are used to produce the finished product (113).

An industrialized nation’s low tariffs on primary commodities encourage the less

The producer surplus is the revenue received over and above the minimum amount required to induce them to supply the good. This minimum amount has to cover the producer’s total variable costs and that total variable cost equals the sum of the marginal cost of producing each successive unit of output (122).

The size of consumer surplus is affected by the market price. A decrease in the market price will lead to an increase in the quantity purchased and a larger consumer surplus. Conversely, a higher market price will reduce the amount purchased and shrink the consumer surplus. If the market price of x rises, more x will be supplied and producer surplus will rise. It is equally true that if the market price of x falls, producer surplus will fall (122).

• What factors influence the size of the revenue, protective, consumption and redistribution effects of a tariff?

The effects of a tariff include a revenue effect, a redistribution effect, a protective effect, and a consumption effect. As might be expected, the tariff provides the government with additional tax revenue and benefits domestic producers; at the same time, however, it wastes resources and harms the domestic consumer

The protective effect of the tariff results in loss to the domestic economy from wasted resources used to produce additional items at the increasing unit cost. The tariff prompts increased domestic output that uses resources that are less suited to produce the item and that increase the production costs. A tariff’s protective effect happens because less efficient domestic production is substituted for more efficient foreign production. Any prior consumer surplus is lost because the tariff has caused it to go to the government as revenue, be transferred to home suppliers as income and lost by the economy because of inefficient domestic production