What Are the Welfare Effects of a Tariff and How

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The Answer is A tariff and a voluntary export restraint (VER) both have welfare effects on the importing country.

A tariff is a tax on imported goods, which increases the price of the imported goods for consumers in the importing country. This leads to a decrease in consumer surplus and an increase in government revenue. However, it also leads to an increase in producer surplus for domestic producers, as they face less competition from foreign producers. Overall, the welfare effects of a tariff result in a deadweight loss, as the total welfare of the importing country decreases due to the higher prices and reduced consumption.

On the other hand, a voluntary export restraint (VER) is an agreement between the exporting country and the importing country to limit the quantity of exports. This can lead to a similar effect as a tariff, as it reduces the quantity of imported goods and increases their price. However, the welfare effects of a VER may be less severe than those of a tariff, as it does not result in government revenue and may not lead to as much of a deadweight loss.

In comparison, a VER may be preferred by the importing country as it allows for some level of control over the quantity of imports without imposing a direct tax on consumers. However, it still leads to higher prices for consumers and reduced overall welfare.

Overall, both a tariff and a voluntary export restraint have negative welfare effects on the importing country, but the specific impacts may differ based on the specific circumstances and agreements in place.

What Are the Welfare Effects of a Tariff and How

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What Are the Welfare Effects of a Tariff and How

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Correct Answer:
Answered by ExamLex AI