Protestor brings economic theory to the front line

HT to colleague David Parr for this image. This protester against the Trump Administration’s use of tariffs has drawn a graph showing the impact of tariffs on quantity supplied, demanded and the pointless deadweight loss – see image below as well. On this topic, here is a note on tariffs and elasticity.

Tariffs and elasticity

When a tariff is imposed on inelastic goods, consumers are less responsive to price changes. Therefore, the price increase due to the tariff is likely to be passed on to consumers by the importers or producers. This results in higher prices for these goods without a significant decrease in quantity demanded. Importers may absorb some of the tariff cost if competition allows, but generally, consumers bear most of the burden.

With elastic goods, consumers are more responsive to price changes. When a tariff increases the price of these goods, consumers are likely to reduce their purchases or seek out cheaper alternatives, including domestically produced substitutes or goods from countries without tariffs. Importers and producers may face reduced sales volumes unless they can absorb the tariff costs to remain competitive.

For more on tariffs view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.