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Removal of Import Tariffs and its Impact on Country's Output
Analyse how the removal of import tariffs could increase a country’s output.
International Trade and Exchange Rates
Frequently asked question
Use graphs, charts, or tables when appropriate to present data or relationships visually.
The removal of import tariffs can have several effects that contribute to an increase in a country's output:
➡️1. Lower Cost of Imports: By eliminating import tariffs, the price of imported goods and raw materials decreases. This reduction in costs benefits domestic firms that rely on imported inputs, as they can purchase these inputs at lower prices. Lower production costs, in turn, enable firms to increase their output without necessarily raising prices, resulting in increased production levels.
➡️2. Improved Product Quality: The removal of import tariffs allows firms to access a wider range of imported products, including those of better quality. This availability of higher-quality inputs can positively impact the quality of the domestic output. Improved product quality can lead to increased demand from both domestic and international consumers, stimulating firms to increase their production to meet the rising demand.
➡️3. Competitive Pressure: The elimination of import tariffs exposes domestic firms to increased competition from foreign producers. To remain competitive, domestic firms are incentivized to improve their efficiency, lower costs, and enhance the quality of their products. This competitive pressure can drive firms to optimize their production processes, invest in research and development, and innovate, ultimately leading to increased output.
➡️4. Attraction of Multinational Corporations (MNCs): The removal of import tariffs signals a commitment to free trade and openness to international business. This can attract multinational corporations to establish operations in the country, bringing with them their expertise, technology, and investment. The presence of MNCs can contribute to increased output through job creation, knowledge transfer, and increased economic activity.
➡️5. Global Trade Effects: The elimination of import tariffs can set an example for other countries, encouraging them to reciprocate and remove their own trade barriers. When multiple countries engage in free trade by reducing or eliminating tariffs, it fosters global specialization and the efficient allocation of resources. Increased global trade can lead to an expansion of overall output as countries focus on producing goods and services in which they have a comparative advantage.
It is important to note that the impact of tariff removal on output depends on various factors, including the specific industry dynamics, domestic production capabilities, and the competitiveness of domestic firms. Additionally, the removal of import tariffs should be carefully balanced with considerations of domestic industries that may require temporary protection to adjust to increased competition.
- Explanation of the removal of import tariffs and its potential effects
II. Lower price of imports
- Explanation of how the removal of import tariffs would reduce the price of imports
- Discussion of how this would enable firms to buy better quality products
III. Lower cost of production
- Explanation of how a lower price of imported raw materials would reduce the cost of production
- Discussion of how this may lower the price of finished products, increasing demand and stimulating firms to produce a higher output
IV. Increased competition
- Discussion of how a lower price of imports may put pressure on domestic firms to be more competitive
- Explanation of how this may encourage them to be more efficient, raising quality, lowering price, and increasing sales
- Discussion of how this would stimulate firms to produce a higher output
V. Attraction of MNCs
- Explanation of how the removal of import tariffs may attract MNCs into the country as it is a move towards free trade
VI. Encouragement of other countries
- Discussion of how the removal of import tariffs may encourage other countries to remove tariffs
- Explanation of how this would increase global output and allow firms to specialize
- Summary of the potential effects of the removal of import tariffs
- Discussion of the potential benefits and drawbacks of this policy change.
The removal of import tariffs would reduce the price of imports - enable firms to buy better quality products -. A lower price of imported raw materials - would reduce the cost of production - this may lower price of finished products - increasing demand - stimulating firms to produce a higher output -. A lower price of imports may put pressure on domestic firms to be more competitive - this may encourage them to be more efficient - raising quality - lowering price - increasing sales - stimulating firms to produce a higher output -. May attract MNCs into the country - as it is a move towards free trade -. May encourage other countries to remove tariffs - increase global output/allow firms to specialise -.