Agriculture Reference
In-Depth Information
Price
S=MC
Pe
Producer surplus
P 3
P 2
P 1
D=MB
1
2
3
Quantity
Figure A4.3. Graphical representation of producer surplus (Kreinin, 1971).
From the foregoing illustration producers in the importing country are made better off by
the new tariff regime. A stylised outcome of the tariff regime can be suggested. The increase
in the price of their product resulting from the tariff increases producer surplus. At the same
time, this price increase induces an increase in output of existing farm firms and attracts
new firms into production. This will result in an increase in employment and an increase in
profit and or payments to fixed costs. These stylised outcomes are shown in Figure A4.1 as
the area under ABED (Kreinin, 1975).
A.4.1.5 Government revenue
The government earns incremental revenue by imposing a tariff regime. This revenue equals
the tariff rate per unit of imported goods times the quantity of goods imported. This
government revenue is part of the consumers' surplus loss that comes with the tariff rule.
Beneficiaries of the revenue collected vary depending on whom the government decides
to spend the incremental earnings on. In most cases this revenue is used to finance a large
portion of the governments' annual budget i.e. it is used to support diverse government
spending programs. This way, the revenue benefits accrue to some sectors of the economy.
Area BCGF in Figure A4.1 illustrates the amount of revenue collected by government with
the imposition of a given tariff regime (Cramer and Jensen, 1994).
 
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