1. Demands of the Question
The demands of the question require the student to write for 20 minutes, as this is a question from paper 2. The question explicitly states three major things, which the student must consider in his writing. The first thing is to use an “appropriate diagram”. Along with that, an account of the meaning of the diagram must be given. The second requirement is to “explain” an economic concept or theory. In an “explain” question like this, the student must make the concept or theory clear to someone else, stating the steps involved in reaching this understanding. The third task is to answer the question which would require naming “who gains and who loses from a tariff”.
2. Definitions:
Tariff: Duty (tax) that is placed upon imports to protect domestic industries from foreign competition and to raise revenue for the government
3. Triple A
- Type of protectionism (protecting against imports)
- A tariff is a tax on imports, which can either be specific (so much per unit of sale) or ad valorem (a percentage of the price of the product)
- Tariffs reduce supply and raise the price of imports
- Gives domestic equivalents a comparative advantage
- Tariffs are distorting the market forces and may prevent consumers from gaining benefit of all the advantages of international specialization and trade.
