I think many people understand why domestic prices are rising due to tariffs. Reduction of competition To increase prices and increase profits. The explanation looks cynical and sophisticated and is not completely wrong, but I miss the deeper truth. In addition, this “explanation” makes people think that the proper response to domestic companies is the price. Price control and threatIt will worsen the situation. In fact, tariffs will increase domestic prices in a perfectly competitive industry. Let’s see why.
Let’s assume the tax income of France and Italian wine. As a result, the demand for California wines increases, and producers of Napa and Sonoma expand their production to meet them. The key points are as follows: It is difficult to expand production without increasing costs. Especially for big expansion in normal time, it is especially expansion.
To produce more, the wine producers of Napa and Sonoma require more land. But the most productive and cost -effective land is already in use. Expansion is a suitable land that is suitable for producers, forcibly forcibly forcibly forced to produce, and in the case of wine, it is more valuable for productivity or other purposes. Wine production competes with the production of olive oil, dairy and craftsmanship, gabo vegetables, livestock, houses, tourism and even geothermal energy (Sonoma). Therefore, the cost increases as wine production expands. The opportunity cost increases. As wine production expands, the price we pay is less than other products and services.
Therefore, the fundamental reason for the rise in domestic prices due to tariffs is that the production expansion should be replaced by the use of high value -added. The higher the money cost, the more the opportunity cost is reflected. The value of product society such as olive oil and cheese is to produce more wine.
And the reason why trade is beneficial is that foreign producers are willing to send wine in return for less resources than to produce wine on their own. In other words, we have two options. Convert resources in olive oil and cheese to produce more wine in Korea, produce more olive oil and cheese, and trade for foreign wines. The latter makes us rich when foreign producers are low.
Customs change this logic. By pushing wine production home, they forced us to get the same wine by sacrificing more olive oil and cheese than necessary, and the result is a net loss of wealth.
Target tariffs do not increase domestic production and convert domestic production from one industry to other industries.
There is a diagram from here Modern principleUse sugar as an example. Without tariffs, we could buy sugar at a world price of 9 cents per pound. This tariff promotes domestic production up to £ 20 billion.
As the domestic sugar industry expands, it attracts the resources of other industries. The value of this resource exceeds what we have paid to foreign producers. Excess costs are represented by the yellow area. Wasteful-The value of the product and service is to use resources instead of producing other products and services that redirect resources with domestic sugar production.
Of course, all of this is described as the modern principle, the best textbook for economic principles. I needed it at any time.
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