Healey vows cheaper marmalade and gherkins in pre-Budget package of 'everyday fixes'
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Tariffs and protectionism, Taxes, subsidies and price controls, Supply, demand and prices
What happened
The chancellor will remove tariffs on some staple goods as part of a pre-Budget package aimed at giving households more breathing space.
The economics
Cutting tariffs reduces trade protection, lowering the cost of imported goods entering the domestic market; the supply curve shifts right, so with demand unchanged the price falls and quantity rises, benefiting consumers. It also illustrates government intervention in prices through a tax instrument (tariffs).
Evaluation
Whether households actually pay less depends on whether importers pass the cost reduction through to retail prices and on competitive pressure facing domestic producers; the short-run price effect may be clear, but exchange rates and global supply also matter over time.
Practice question
Using this example, analyse the effect of removing tariffs on staple goods on market prices and consumer surplus.
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Where it fits in the syllabus
- Tariffs and protectionism: Tariffs, quotas and similar barriers that shield domestic producers, at the cost of higher prices and possible retaliation.
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- Supply, demand and prices: How a change in demand or supply in one market moves its equilibrium price and quantity.
- IB Economics: International Trade, Government Intervention and Market Failure, Demand, Supply and Elasticity
- A-Level Economics: International Economics, Government Microeconomic Intervention, Supply and Demand
- AP Macroeconomics: Open Economy: International Trade and Finance
- AP Microeconomics: Supply, Demand and Market Equilibrium, Market Failure and the Role of Government
- IGCSE Economics: International Trade and Globalisation, Government Intervention, Demand and Supply