ECON 1050 Chapter 7: Economics-1 (1) (dragged) 3

• School: University of Guelph
• Department: Economics
• Course: ECON 1050
• Professor: Eveline Adomait

Document Summary

Winners, losers, and social loss from a tariff. When the canadian government imposes a tariff on imported t-shirts: canadian consumers of t-shirts lose, canadian producers of t-shirts gain, canadian consumers lose more than canadian producers gain, society loses: a deadweight loss arises. Canadian buyers of t-shirts now pay a higher price (the world price plus the tariff), so they buy fewer t-shirts. The combination of a higher price and a smaller quantity bought decreases consumer surplus. The loss of consumer surplus is the loss of canadian consumers from the tariff. Canadian garment makers can now sell t-shirts for a higher price (the world price plus tariff), so they produce more t-shirts. But the marginal cost of producing a t-shirt is less than the higher price, so the producer surplus increases. The increase in producer surplus is the gain to canadian garment makers from the tariff. Canadian consumers lose more than canadian producers gain. Consumer surplus decreases and producer surplus increases.