Suppose Germany imposes a $10 per barrel tariff on imported refined oil products

Question

Suppose Germany imposes a $10 per barrel tariff on imported refined oil products.

a-      A-What is the short run profit outlook for German refineries? What is the long term profit outlook?

b-      B- Suppose that eight years after imposing this tariff Germany  revokes it. What is likely to happen to the refining industry at that time.

Suppose Germany imposes a $10 per barrel tariff on imported refined oil products. A-What is the short run profit outlook for German refineries? What is the long term profit outlook? B- Suppose that eight years after imposing this tariff Germany revokes it. What is likely to happen to the refining industry at that time.

Explanation / Answer

a).

Redistribution Effect refers to the transfer of real income from the consumers to the producers as a result of tariff. The tariff-imposed price increase . results in the loss of consumer's surplus . Of the total loss suffered by the consumers, some amount is transferred to the german producers. so the profit increases .

In the long term

. It tends to raise the german price of the imported commodity, reduce the domestic demand for that commodity and profit goes down

b.

Domestic price falls down drammatically and german refineries can't compete and go out of bussiness

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