Cambridge International as and a level Economics Ebook

Methods of protection and their impact
Tariff s
Tariff s
are the best known method of protection and are 
sometimes referred to as customs duties. Tariff s are taxes 
usually on imports but may also be imposed on exports. 
Th
ere are two key motives behind taxing exports; these 
are to raise revenue and to increase supply of the product 
on the domestic market. Revenue raising may also be the 
reason for taxing imports. Th
e other motive is to discourage 
consumption of imports. A tariff can be specifi c, that is a 
fi xed sum per unit, or 
ad valorem
, which is a percentage 
of the price. A tariff imposes an extra cost on the supplier 
which usually pushes up the priceshows that 
the imposition of a tariff will benefi t domestic producers as 
their output rises from 
Q
to 
Q
1
. Domestic consumers lose 
out as they have to pay a higher price 
P
1
and experience a 
reduction in their consumption from 
Q
3
to 
Q
2
.
A tariff will be more eff ective in raising revenue if 
demand for imports is price inelastic whereas it will be 
more eff ective in protecting the domestic industry if 
demand for imports is price elastic.
Th
ere is the possibility that the imposition of a 
tariff may not make domestic products more price 
Figure 4.26 
The eff ect of imposing a tariff 
P
1
P
0
Price
Quantity
Q
1
Q
3
Q
4
S
D
World supply
with tariff
World supply
without tariff
Domestic
Demand
Q
Domestic
Supply
Name
Membership
Association of Southeast Asian Nations (Asean)
Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, 
Singapore, Thailand, Vietnam
Caribbean Community and Common Market 
(Caricom)
Anguilla, Antigua and Barbuda, Bahamas, Belize, Dominica, Grenada, 
Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, 
Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago
East African Community (EAC)
Kenya, Rwanda, Tanzania and Uganda
Economic Community of West African States 
(ECOWAS)
Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, 
Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo
GCC (Gulf Cooperation Council)
Kuwait, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates
Table 4.8 
Examples of trade blocs and their membership
competitive. Th
is would be the case if the price of the 
import plus the tariff is still below the domestic price or 
if fi rms selling the imports absorb the tariff and do not 
raise their prices.