customs economics

1. Tariff & welfare
Does tariff enhance welfare?
By
Dr. Mohamed Osman
Lecturer of public economics-faculty of
commerce Alexandria university

2.  The main points:-
- Free trade or protectionism.
- Types of protectionism.
- Tariff.
• The definition
• Types of tariff.
• THE ECONOMIC & SOCIAL IMPACTS OF tariff ON IMPORTS.
• EFFECTIVE RATE OF PROTICTION.
• Welfare effect of tariff

3. Free trade
Free trade: - is the trade policy under which
governments impose absolutely no tariffs or
restrictions on imports or exports.
why free trade?
1- With free trade, domestic producers face competition
from abroad and that will be more incentives to
decrease costs and increase efficiency..
2- Free trade decreases the market power of monopolies
3- Provides consumers with a greater variety of goods
4- Free trade will increase consumption
5- consumers can enjoy the lowest of prices.
6-Technology can cross over countries more easily .
.

4. Protectionism
 Protectionism is the economic policy of
restricting imports from other countries through
methods such as tariffs on imported goods, import
quotas, and a variety of other government regulations.
 Why protectionism?
1- Response to import.
2- Response to chronic deficits.
3- Response to recession.
4- Protect employment.
5- Protect infant sector.
6- Protect strategic industries.
7- Raise public revenues.

5. -Types of protectionism:-
1- Tariff.
2- Non tariff
-Quotas.
-Exchange rate.
-Product standards.
-Export subsidy.

6. Tariff
-Tariff is a tax is imposed on imports or exports products.
-The general rule is imposed
tariff on imports while the
exemption is the general rule
for exports.

7. Types of Tariffs
-Tariffs can be classified to three categories:
1-Protective Tariff: to protect the local industries from
foreign competition.
2-Revenue Tariff: to maximize public revenue.
3-Preventive Tariff: to protect some imports to enter
the domestic market.

8. -All types of tariff can be classified to three categories:
1-Specific tariff: is a fixed amount of tax per unit of
imported or exported products
2-Ad- valorem tariff: is imposed as a certain percentage
of the value of imports or exports.
3-Compound Tariff: The tariff includes both two types of
tariff, specific and ad - valorem tariff.

9. THE ECONOMIC & SOCIAL IMPACTS OF tariff ON
IMPORTS
- The tariff on imports can be classified to three types:
-Protective tariff.
-Revenue tariff.
-Preventive tariff.
-What are the impact of these types of tariffs on the
domestic production , consumer's welfares and the
internal prices????.

10. Consumer surplus: measure the difference between
the amount that the buyers would be willing and able
to pay for certain goods and the actual amount they are
paying.
-All area under the demand curve reflects the consumer
surplus if the price equal zero.
** Any increase of market price (other things being
equal) will lead to decrease consumer surplus.
Producer surplus: is the difference between the
amount of revenue received by producer and the
total variable cost.

11. EFFECTIVE RATE OF PROTICTION
-Economists distinguish between the nominal
tariff
and the effective tariff rates.
-The nominal tariff rate is published, but
the effective tariff takes in consideration
not only the nominal tariff rate on
finished products but also tariff rate
that is imposed on the imported inputs
that are used in producing the finished
products.

12. EX.
Effective rate measures the percentage increase
of the domestic production of desktops per
unit of output as a result of imposing both
tariff on imported finished desktops and tariff
on the imported inputs.

13. -In general the effective tariff can be estimated by using
the following formula:
E = N – a b
1 – a
E refers to effective tariff rate (effective rate of
protection.
N refers to nominal tariff rate of the final products.
a refers to the ratio between the value of imported
inputs and the value of the domestic finished product.
b refers to the nominal tariff on the imported inputs.

14. Example: Suppose the nominal tariff on clothes is 25%
of its value, tariff on the imported inputs of clothes is
0%, the ratio between the value of imported inputs
and the value of the domestic output of clothes equal
67%, Determine the effective rate of tariff on clothes ??
:Solution:- N= 25% a= 67% b= 0%
Effective rate of protection ( E ) =
E =25% – (67% * 0%) = 75%
1 – 67%
This result means the effective tariff rate is greater than
the nominal tariff rate .

15. Case (2):- N=25% a=67% b=15%
E =25% – (67% * 15%) = 45%
1 – 67%
This result means the imposition of tariff on the imported inputs
reduces the effective tariff rate from 75% to 45%.
Case (3):- N=25% a=67% b=25%
E =25% – (67% * 25%) = 25%
1 – 67%
This result means that the effective rate is equal the nominal rate.
Case (4):- N=25% a=67% b=30%
E =25% – (67% * 30%) = 15%
1 – 67%
This result means the effective tariff rate is less than the nominal
tariff rate .
.

16. -Any decreasing of the imported
inputs tariff will make the tariff on
the imported finished more
effective to protect the finished
domestic products.