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Ib Economics Ia

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Submitted By ralphdeng
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Tariff, meaning the tax charged on imported goods, is often viewed as necessary means to protect the domestic markets from fierce foreign competitions. As an integral component of protectionism measures, placing tariff to goods produced abroad can exert drastic effects to the market by increasing the price for imported goods, and therefore lowering its supply. In addition to this consequence, the other stakeholders would also either benefit or lose from this type of regulation, since the tradeoff often occurs inevitably as a result of this change in government policies.
In this case, as the article states, “The European Union imposed tariffs of as much as 42.1 percent on solar glass from China.” The imposed tariff would adds to price of each unit of the imported solar glass by the amount of tariff, which shifts the supply curve up from S(world) to S(world)+tariff, since the price for solar glass increases drastically from Pw to Pw+tariff The effect of this change is illustrated from the diagram below

Because the Chinese solar glass producers do not receive the gains from the price increase due to tariff, and thus European domestic producers can raise their prices with increasing supply in order to compete with the foreign imports. The domestic producers benefits tremendously since they can sell a larger quantity of solar glass at a higher price. The revenue that domestic producer earn increase from 0 to Q2 at world supply price to 0 to Q3 at Pw+tariff. On the other hand, Chinese solar glass producers would receive less revenue from Q2 to Q5 at world price to only Q3 to Q4. This happens because of the reduced market share and international competitiveness resulted from placing tariffs to the Chinese solar glass. In addition to those consequences analyzed from above, the other various stakeholders are also affected by the tariff, since a larger quantity of

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