Writing Assignment 3: Tariff Analysis

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Consequences of a Tariff

A tariff is a tax on imports, so the businesses and consumers of the nation that imposes the tariff will pay more for the imports and foreign sellers will sell less. Use the image of market supply & demand for imported coffee below as your guide to explaining the impact of an American tariff on coffee imports.

Assuming that the market for coffee imports starts in equilibrium at the price of $1.40 per pound, assess the impact of an American coffee tariff on:

1. Consumer surplus in the USA
2. Producer surplus of foreign coffee suppliers to the American market
3. Tariff revenue and the incidence of the tax (who pays & by how much?)
4. American business special interests served by a coffee tariff (Hint: there ARE American coffee producers, mostly in Hawaii).
5. Assess the impact of this coffee tariff on the welfare of American households, businesses, and government as a whole. How well has the whole nation fared as the result of this coffee tariff?
6. Identify what will happen to the economic interdependence between the USA and the nations that export coffee to our market. How are coffee-exporting nations likely to respond to the new American tariff on their product?

For extra credit, using the scaling on each axis provided on the graph, calculate the value of items 1-5 (above) mathematically. How much better off is the nation as a whole as the result of this tariff?