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by GUESS WHO on February 4th, 2008
tariffs...
advantages is that they increase the competetivness of domestic producers both domestically and on foreign markets....
they also raise money for the government in terms of revenue which can be used for government spending
they also improve the balance of payments position by decreasing imports as they become more expensive and less attractive to purchase..
However disadvanages..
1.) could result in retaliation form other foreign economies... which could mean import control on goods that the we import...leading to higher prices and potentially inflationary... (negative world multipiler effect)
2.) a tariff will only work if the price elasticity of demand for the good is elastic.. if inleastic then the deamand is unresponsive to changes in price and hterfore an import control resulting in a higher price of the good will have little impact on the demand for it...
3.) finally trade barriers dont actually dela witht he main cause of the problem..... instead governments looking to impose trade barriers..most likely to improve B.O.P positions..or increase domestic producers competeivness should look to implement supply side policies and increase the efficieny of production...leading to a fall in costs of production..and these lower costs can be passed on to to consumers through lower prices and therfor eincreasing comopetetivness.. (reducing demand for imports and increasng demand for exports)
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