Will wrote:You mention that by removing tariffs, government revenue is decreased as well as the profit of the Australian producer. However you mention that consumers are the big winners. I agree that consumers are the big winners as they can buy goods cheaper. However I am confused because if these consumers are buying overseas made cars for example, does this not mean that their money is leaving the country instead of staying here?
Supply chain effects are a lot harder to quantify than the immediate effects on producers and consumers, but you're correct in thinking money leaving the nation is a negative thing. However, as a resource scarce economy, (ie, an economy at full employment and rising inflation), it is of benefit for the less efficient industries like Mitsubishi to move off shore. This frees up resources: land, labour and capital; be used by more profitable and productive industries, which can export at greater profit. An industry that is protected from the global market has little reason to innovate and become globally competitive, and as Edgar stated, find it difficult to export.
Will wrote:Additionally isn't it bad that the government receives less revenue? How does the government make up the revenue that it loses via reductions in tariffs?
Again, this is true, but there are many less economically disruptive ways to generate taxation revenue, such as a Value Added tax (GST). Tariffs aren't an important part of government revenue because of this, there's better ways to raise taxes. It's assumed in the model, for simplicity, that there are no other taxes (income taxes, company taxes, GST, etc) which would be affected by the changes in price and volume.
Now with Beer Garden for our smoking patrons.
