RI 2025+Globaliation Marks+Scheme

T3W6 Class Test 5 Globalisation & the International Economy – Mark Scheme © Raffles Institution 1 T3W6 Class Test 5 Globalisation & the International Economy Mark Scheme “The word tariff is the most beautiful word in the dictionary” - Donald Trump Discuss the extent to which the imposition of tariffs on imported goods would benefit producers and improve the economic performance of the United States. [15] Suggested Answer Introduction: • Imposition of tariffs is a form of protectionism. • Protectionism is a policy of sheltering domestic industries from foreign competition through the imposition of trade barriers on imports. • This could impact domestic producers and the economic performance of the US in terms of its economic growth, unemployment rate, inflation rate and its balance of trade. Body: Discuss the effects of tariffs on producers and KEI R1: Effects of tariffs on producers Thesis: Explain how the imposition of tariffs on imported goods would benefit producers • Tariffs on steel may benefit steel producers as they increase the total revenue and producer surplus of these producers • In the diagram below, Sd and Dd show the country’s domestic supply and demand. • Assume that country is a price taker, and this means it can import as much steel at the price of Pw. Countries which has CA in steel production includes China who can produce steel at lower price than the US. • The imposition of tariffs on the steel industry would artificially raise the world price to Pw+t. • Due to the rise in price of foreign steel, domestic quantity supplied rises from Q1 to Q2. A P Qe Dd Sd Qty Pw Q4 Q1 Sw 0 E P F G K Sw+t Pw + t Q2 Q3 H J C B

T3W6 Class Test 5 Globalisation & the International Economy – Mark Scheme © Raffles Institution 2 • Producer surplus is the difference between the minimum price a producer is willing and able to accept and the actual price they receive. • Producers will have an increase in producer surplus from KPwE to KPw+tB as the price they receive will increase from Pw to Pw+t and increase in quantity supplied from Q1 to Q2. • Total revenue also increases from 0Q1EPw to 0Q2BPw+t this is because of the rise in price from Pw to Pw+t and the increase the domestic quantity supplied from Q1 to Q2. • Hence, the imposition of tariffs on imported goods could benefit domestic producers Anti-thesis: Explain how the imposition of tariffs on imported goods would worsen impact on producers • However, as steel is also an imported factor of production, these tariffs on steel would increase the price of imported factors of production. • For example, car companies in the US such as Ford and Tesla might need to pay more for foreign steel or choose to buy more expensive domestic steel. • This would raise the cost of production. • Using DD/SS framework, this would reduce the SS of car s → Rise in price of cars, fall in Qty sold → Fall in p