Activity 2

NAME_______________________________

IMPACT OF TARIFFS ON BUSINESS AND CONSUMERS

Directions: Read the following information. Then answer the questions which relate to the information.

IMAGINE YOU ARE A NEWSPAPER REPORTER ASSIGNED TO report on a story in a different country. The country’s name is Fictionland. It is located near you, and its legislature has just passed a new tariff law to protect jobs and business in the Fictionland sugar industry. While doing your research, you discover the following facts about the sugar industry as it operated before the new tariff was approved.

    1. There are 10 sugar producers in Fictionland.
    2. They produce 500,000 pounds of sugar each month.
    3. At this time the Fictionland sugar producers cannot expand their production.
    4. Foreign sugar producers also sold a total of 500,000 pounds of sugar per month in Fictionland.
    5. There are 100 million sugar consumers in Fictionland.
    6. Consumers bought 1 million pounds of sugar per month at a price of $2 per pound.

ADDITIONAL INFORMATION

Tariff supporters argued that the tariff would raise money for the government to help balance the budget without raising the taxes of Fictionland citizens. It would also help preserve jobs and businesses in a traditional part of the economy – the sugar industry. There was little opposition to the bill, and it passed a vote in the Legislature by a wide margin.

CONSEQUENCES

    1. Foreign producers reacted to the higher costs imposed by the tariff by supplying less sugar to Fictionland. They reduced their sales to Fictionland by one half.
    2. Prices rose from $2 per pound to $3 per pound. Local economists explained that supply declined while demand for sugar remained stable, so market prices rose to a new equilibrium level.
    3. Domestic sugar producers continued to make and sell 500,000 pounds of sugar per month. They now could charge a price of $3 per pound.

You think you may have a story to write – one that has been overlooked by other reporters. Answer the following questions and decide whether the tariff has helped the Fictionland consumer.

    1. How much sugar was sold per month before the tariff was passed?
    2. How much sugar was sold per month after the tariff was passed?
    3. How did the price of sugar change after the tariff was passed?
    4. How much total revenue did the Fictionland sugar producers receive before the new tariff was passed?
    5. How much total revenue did the Fictionland sugar producers receive after the new tariff rules went into effect?
    6. How much additional revenue do Fictionland sugar producers receive each year as a result of the new tariff rules?
    7. What does the average Fictionland sugar producer make per year as extra revenue as a result of the new tariff law?
    8. How much extra money must consumers pay to receive the 500,000 lbs. of Fictionland sugar made by Fictionland producers?

© Council for Economic Education
United States History: Focus on Economics, Lesson 7

Can Business Profit from Tariffs: Economics Lesson