TARIFF - Domestic companies that may rely on imported materials to produce their

goods could see tariffs reducing their profits and raise prices to make up the
- A tariff is a tax or duty imposed by one nation on the imported goods or difference, which also hurts consumers.
services of another nation.
NEGATIVE CONSEQUENCES OF TARRIF
- Tariffs are a political tool that have been used throughout history to
Thus, while existing research has mostly documented negative
control the amount of imports that flow into a country and to determine
consequences of the tariff increases on the broad economy–including
which nations will be granted the most favorable trading conditions. High
higher prices, lower consumption, reduced business investment, and drops
tariffs create protectionism, shielding a domestic industry's products against
in the valuations of affected firms.
foreign competition.

- High tariffs usually reduce the importation of a given product because the PRIMARY FUNCTIONS OF TARRIF
high tariff leads to a high price for the customers of that product.
Tariffs have three primary functions:
BENEFITS OF TARIFF
(1) to serve as a source of revenue;
- Tariffs mainly benefit the importing countries, as they are the ones setting (2) to protect domestic industries; and
the policy and receiving the money. (3) to remedy trade distortions (punitive function).

- The primary benefit is that tariffs produce revenue on goods and services The revenue function comes from the fact that the income from tariffs
brought into the country. provides governments with a source of tax revenue.

- Tariffs can also serve as an opening point for negotiations between two
countries.
DISADVANTAGES OF TARRIF
- Tariffs raise the price of imports. This impacts consumers in the country
applying the tariff in the form of costlier imports. When trading partners
retaliate with their own tariffs, it raises the cost of doing business for
exporting industries. Some analysts believe that tariffs cause a decrease in
product quality.
POSITIVES AND NEGATIVES OF TARRIF
- Tariffs make imported goods more expensive, which obviously makes
consumers unhappy if those costs result in higher prices.
REASONS FOR IMPOSING TARRIF
To protect newly established domestic industries from foreign competition.
To protect aging and inefficient domestic industries from foreign
competition.
To protect domestic producers from "dumping" by foreign companies or
governments. Dumping occurs when a foreign company charges a price in
the domestic market which is below its own cost or under the cost for which
it sells the item in its own domestic market.
To raise revenue. Many developing nations use tariffs as a way of raising
revenue. For example, a tariff on oil imposed by the government of a
company that has no domestic oil reserves may be a way to raise a steady
flow of revenue.
 QUOTA
A quota is a type of trade restriction where a government imposes a limit on
the number or the value of a product that another country can import. For
example, a government may place a quota limiting a neighboring nation to
importing no more than 10 tons of grain. The government could also
structure the quota to allow the import of up to $20 billion worth of grain.
Another type of quota is the tariff quota. Tariff quotas give preferential
treatment to a certain quantity of imported goods. For example, a
government may agree to allow the import of up to 10 tons of grain taxed at
5% tax. Each ton of grain after the 10th incurs a 10% tax. While there is no
hard limit on the amount of a product that another nation may import, the
cost of the tariffs increases once they reach the quota.
Quotas can apply to all countries equally or only to certain countries. For
example, a government might be willing to import 10 tons of grain from
each of its neighbors, so it establishes a separate quota for each.
Import quotas are a tool that governments can use. They aren’t inherently
good or bad, and whether their effects are good or bad mostly depends on
your point of view. Governments frequently use quotas to protect domestic
producers. Some people view this as a good thing because it helps protect
jobs and give local entrepreneurs more opportunities to start businesses. At
the same time, others might think that the benefits of free trade, such as
lower prices for consumers and higher quality products, outweigh the
benefits of protectionism. Governments can also use quotas as part of
international trade wars, where they use economic sanctions to influence
other nations’ behavior. People who agree with their government’s goals
will probably see quotas as a good thing in this scenario. Those who
disagree with the government will likely view the allowances as a bad thing.
DEFINITION
A quota is a government-imposed trade restriction that limits the number or
monetary value of goods that a country can import or export during a
particular period. Countries use quotas in international trade to help
regulate the volume of trade between them and other countries. Countries
sometimes impose quotas on specific products to reduce imports and
increase domestic production. In theory, quotas boost domestic production
by restricting foreign competition.
EFFECTS OF IMPORT QUOTA
An import quota is a limit on the amount of imports that can be brought
into a particular country.
For example, the US may limit the number of Japanese car imports to 2
million per year.
Quotas will reduce imports, and help domestic suppliers. However, they will
lead to higher prices for consumers, a decline in economic welfare and
could lead to retaliation with other countries placing tariffs on our exports.
Quotas will lead to lower sales for foreign companies, but it could push up
prices and make sales more profitable.
Types of quotas
 Absolute quota – a simple physical limit on the number.
 Tariff rate quota – These allow a certain number of imports to gain a
discount on the usual tariff rate.
 Voluntary export restraints (VER) This is when a government limits
the amounts of exports from one country to another for a particular
type of good.
How Does a Quota Work?
Quotas are usually set by government or by an organization of producers of
a particular product.
For trade quotas, governments set the quota limiting the import of a
particular product, restricting the access to the domestic market by an
offshore producer, and giving the domestic producers the opportunity to
improve their position in the market. Such protectionist policies in
industries including steel, autos, and many consumer electronics products,
have protected domestic industry from international competition.

In production quotas, a government or a group of producers, limit the

supply of a particular product in order to maintain a certain price level. For
example, the Organization of Petroleum Exporting Countries sets a
production quota for crude oil in order to "maintain" the price of crude oil in
world markets.

Quotas vs Tariffs

Quotas tend to cause a bigger fall in economic welfare because the

government don’t gain any tax revenue, that you get with tariffs.

Quotas allow the country to be certain on the number of imports coming in.
Tariffs is more unknown because it depends on the elasticity of demand and
how consumers and suppliers react to the tariff.

Quotas may be harder to enforce if it is difficult to count the amount of the

good coming into the country.

Quotas could be more unfair. Some export firms may do well if they get the
quota allowance, but others may lose out. It becomes a political issue on
how to distribute the quotas. Firms may also dislike the uncertainty of not
knowing how many quotes to gain.
STAGES OF PRODUCTION
TOTAL PRODUCT – The total amount of output in the production process
combining labor and the fixed quantity of capital.
MARGINAL PRODUCT – The additional output that can be produce using one
more unit of the input. The marginal product (MP) can be computed as MP
AVERAGE PRODUCT – The amount of output that can be produced per unit
of input used in the production process. It is measured as AP=TP/Q
The best stage of production process is Stage 2 as the firm’s goal of
maximizing profit or minimizing cost is achieved at this stage. Likewise,
Stage 2 is driven by THE LAW OF DIMINISHING MARGINAL RETURNS. The
law states that adding more of an input to an existing fixed input results in
smaller increases in output.
TOTAL AND MARGINAL UTILITY – The behavior of consumers is driven by
their preference on specific bundle of goods and services.
Consumers buy and consume goods and services because they derive
satisfaction from them. In economics, this concept of pleasure or
satisfaction is referred to as UTILITY.
Utility is subjective and difficult to quantity. However, it is assumed that
people can Measure satisfaction with units called utils (an imaginary unit of
utility).
TOTAL UTILITY – Is the total level of satisfaction a consumer derives from
consuming all those units of a good service.
MARGINAL UTILITY – Is the additional satisfaction a consumer gains from an extra
unit of the good consumed. It can be expressed as MU= /_\ TU/ /_\ Q

Stage 1

TP increases at an increasing rate.
MP increases and then decreases. MP is greater than AP.
AP increases and reaches it maximum and has positive slope.
Stage 2
TP increases at a decreasing rate and reaches it peak.
LAW OF DIMINISHING MARGINA UTLITY states that a consumer will derive less
additional satisfaction to the as more units of a good are consumed.
Initially, TU curve increases at an increasing rate. Eventually, as more units of good
are consumed in a given time period, TU continues to increase but a decreasing
rate. TU starts to decline after it reaches its peak.
MU curve slopes downward which exhibits the law of diminishing marginal utility. It
MU is zero when TU is at its peak. MU becomes negative when TU begins to fall.

MP has a negative slope as it decreases. MP is less than AP.

AP falls and has still have positive slope.

Stage 3

TP begins to decrease and has a negative slope.

MP turns negative and is moving down.

AP continuously falls and now has a negative slope.

Export 986,405
Import 695,305
Net Investment 965,410
Depreciation/CCA 320,505
Consumption of goods and service 396,525 1.GNP Expenditure Approach C+G+IG+XM
Government Expenditure 526,460
Undistributed Corporate Taxes 320,975 Net XM ( X - M ) 291,100.00
Dividend 299,410
Corporate Income Taxes 394,520 IG ( IN + CCA ) 1,285,915.00
Rent 68,600
Wages/Salary 326,510
Consumption of goods/services 396,525.00
Interest 195,680
Proprietors Income 475,320 526,460.00
Government Expenditures
Indirect Business Taxes 98,480 Gross Private Domestic
Fishery 270,300 Investment 1,285,915.00
Forestry 360,800
Mining and Quarrying 290,700 Net XM 291,100.00
Construction 170,500
Manufacturing 230,400 Gross National Product 2,500,000.00
Electricity 195,200
Transportation and Communication 59,300 2. GNP by Income Approach
Ownership and Real Estate 195,200
Trade 196,600 UCP 320,975.00
Finance 178,400
D 299,410.00
Public Services 320,100
Private Services 32,500 CITx 394,520.00
SSC 68,400
TP 48,950 Corporate Profit 1,014,905.00
PT 36,800
IPC 32,900
Rent 68,600.00 c.Services Sector

Wages/Salary 326,510.00 Fishery

Transportation 59,300.00

Interest 195,680.00 Minning&Quarring

Ownership and Real Estate 195,200.00

PY 475,320.00 Construction
Trade 196,600.00

IBTx 98,480.00 Manufacturing

Finance 178,400.00

CCA/ Depreeciation 320,505.00 Electricity

Public Services 320,100.00

Corporate Profit 1,014,905.00 Transportation

Private Services 32,500.00

Gross National Product 2,500,000.00 Ownership

Services Sector
and Real Estate 982,100.00
Trade
3. GNP by Industrial Approach Finance
a. Agricultural Sector Agricultural
Public Sector
Services 631,100.00

Forestry 360,800.00 Industrial

Private Sector
Services 886,800.00

Fishery 270,300.00 Services Sector 982,100.00

Agricultural Sector 631,100.00 Gross National

Disposable Product
Income 2,500,000.00
National Net Product
b. Industrial Sectors NetIncome
Personal National Income Product

Mining&Quarring 290,700.00 Gross National

Personal Taxes Product 2,500,000.00
-
Construction 170,500.00 CCA/ Depreciation
Interest Paid by Customers 320,505.00

Manufacturing 230,400.00 Net National

Personal SavingIncome Product 2,179,495.00

Electricity 195,200.00 Social Security Contribution

Consuption of Goods/Services 396,525.00
Industrial Sector 886,800.00 Transfer Payments
Government expenditures 526,460.00
Net investment
 965,410.00 1,014,905.00

Net XM 291,100.00 National Income 2,081,015.00

Net National Income Product 2,179,495.00

Personal Income

National Income 2,081,015.00

Rent 68,600.00 -
Social Security Contribution 68,400.00
Interest 195,680.00 -
Corporate Income Tax 394,520.00
Wages/Salary 326,510.00 -
Undistributed Profit 320,975.00
PY 475,320.00
Transfer Payments 48,950.00
IBTx 98,480.00
Personal Income 1,346,070.00
Corporate Profit 1,014,905.00
Disposable Income
Net National Income Product 2,179,495.00
Personal Income 1,346,070.00
National Income -
Personal Taxes 36,800.00
Net National Income Product 2,179,495.00
- Disposable Income 1,309,270.00
IBTx 98,480.00
Personal Savings
National Income 2,081,015.00
Disposable Income 1,309,270.00
-
Rent 68,600.00 Interest Paid by Consumers 32,900.00
-
Interest 195,680.00 Consuption of Goods/Services 396,525.00

Wages/Salary 326,510.00 Personal Savings 879,845.00

PY 475,320.00
Corporate Profit
 11 W/S Wages/Salary
12 I Interest
13 PY Income Proprietor's
14 IBTx indirect Business Tax
15 Forestry
16 Fishery
17 Minning&Quarring
18 Construction
19 Manufacturing
(TC2- 20 Electricity
AVC- TC1)/(Q2-
21 Transportation
TC-VC Q+Q AC*Q Q1) TC/Q FC/Q VC/Q
22 Ownership and Real Estate
23 Trade
AC- 24 Finance
AFC*Q TC-FC TR-P C+FC/Q AVC (TC-FC)/Q
25 Public Services
26 Private Services
AC*Q-
VC AVC*Q VC+FC AFC+AVC/Q (AC*Q-FC)/Q DI Disposable Income
NNP National Net Product
IG Gross Private Domestic Investment PI Personal Income
1 IN Net investment 27 PT Personal Taxes
28 IPC Interest Paid by Customers
Depreciation/Capital Consumption
2 CCA Allowance PS Personal Saving
3 X Export 29 SSC Social Security Contribution
4 M Import 30 TP Transfer Payments
5 G Government expenditures
6 C Consuption of Goods/Services

CP Corporate Profit
7 UCP Undistributed Corp Profit
8 D Dividends
9 CITx Corp. Income Tax
10 R Rent