How does the imposition of a tariff on the market for cigarettes in Italy affect its consumers and producers?

Suppose the Italian government wants to curb consumption of international cigarettes, such as Marlboro, that are imported from countries like the United States. They may implement a protectionist measure, such as a tariff, or a tax on imports which is designed to restrict imports and raise government revenue, to accomplish this. For consumers, the prices become higher than before, and consumer surplus, the difference between the amount consumers are willing to pay and the amount they actually pay, is lost, however consumer welfare may actually improve in this scenario, as less cigarettes are now being purchased. Domestic producers gain revenue, as they can now produce at a higher output and sell at a higher price, however foreign producers lose out, as the tariff decreases the quantity demanded of their cigarettes.

Answered by Feo K. Economics tutor

1469 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

If monopolies are so inefficient, why do they still exist?


Using diagrams, explain how the incidence of an indirect tax may be affected by the price elasticity of demand.


Explain the difference between expansionary and contractionary fiscal policies


How to I approach the 10 mark question on paper 1?


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo
Cookie Preferences