Microeconomics Assignment: Analyzing international trade tariffs

This assignment provides an analysis of the impact of import tariffs on international trade using a microeconomic framework. The analysis focuses on a scenario involving Korea and its beef imports. The solution includes a graphical representation of the market before and after the imposition of tariffs. It calculates consumer and producer surplus under both scenarios and determines the government's revenue from tariffs. The assignment also calculates the deadweight loss resulting from the tariffs. Calculations are presented for consumer surplus, producer surplus, and governmental revenue along with a final calculation of deadweight loss to highlight the economic inefficiencies caused by the tariff.

MICROECONOMICS
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Table of Contents
PART III – Global markets in Action – International Trade restrictions (Import tariffs).....................3
(D) Graphical presentation & calculation of consumer & producer surplus, governmental tariffs
and deadweight loss.........................................................................................................................3
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PART III – GLOBAL MARKETS IN ACTION – INTERNATIONAL TRADE
RESTRICTIONS (IMPORT TARIFFS)
(D) Graphical presentation & calculation of consumer & producer surplus, governmental tariffs and
deadweight loss
From the scenario, it can be seen that Korea imports a beef quantity at an equilibrium price
of $8 million per kilo tonne and quantity at the equilibrium point was reported to 375 kilo tonne.
Now, if it starts to trade without any tariff then the domestic market demand will be 625 kilo tonne
at a domestic supply of 125 kilo ton at the price of $4 million/kilo tonne. Here, its graphical
representation is stated below:
Looking to the graph, the producer surplus at no tariff duties and charges is clearly shown by
the bounded area which is JFE. However, in case when tariff at 40% are charged then the surplus of
the producer will be represented by the area JDA. The difference between both the areas is indicates
producer surplus.
Here, the area which is bounded by the JFE & JDA can be computed as follows:
JFE: ½*(4-2)*(125kilo tonne – 0)
= ½*2*125
= 125 Kilo tonne
JDE: ½ * [4+ (4*40%) -2]*(250 kilo tonne -0)
= ½ (5.6 – 2)*(250 Kilo tonne)
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= ½ * (3.6)*(250)
= 450 kilo tonne
Producer surplus: JDE – JFE
= 450 – 125
= 325 kilo tonne
However, the surplus of consumer in case of no tariff duties is reflected by the area covered
by KIE whilst if tariff charges are imposed then the surplus is reflected by the area covered by
KCA. The difference between these two areas reflects consumer surplus computed below:
KIE: ½*(15-4)*(625-0))
= 1/2(*(11)*(625)
= 3,437.5
KCA: ½*[15 – (4+(40%*4))] * (500 kilo tonne – 0)
½ * (15 – 5.6)*(500 kilo tonne)
= ½ * 9.4*500
= 2350
Consumer surplus: KCA - KIE
2,350 – 3,437.5
= -1087.5 kilo tonne
Governmental revenues by imposing tariff charges is indicated by the area DCHG,
computed below:
(500 – 250) * (5.6 -4)
(250) * (1.6)
400
Here, the deadweight loss can be founded as follows:
Governmental tariff revenue + surplus of the producer – consumer surplus
= 400 + 325 – 1087.5 = -362.5 Kilo tonne
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