Discuss the likely impact on Rwandan consumers and clothing manufacturers of the increase in the tariff on imports of second-hand clothes
Edexcel A-Level Economics Paper 2 June 2021 Extract
Discuss the likely impact on Rwandan consumers and clothing manufacturers of the increase in the tariff on imports of second-hand clothes. Use an appropriate diagram to support your answer. (12 marks)
Firstly, the increase in the tariff on second-hand clothing will lead to an increase in prices for Rwandan consumers. Extract A mentions a $2.50 tariff per kg of used clothes. A tariff is a tax imports. An increase in the tariff will cause a leftward shift in the perfectly elastic world supply curve for second-hand clothing. The diagram shows this from Sworld to Sworld + tariff. Consumers will pay more for clothing as seen be the price increase. This can reduce their living standards as they would be able to satisfy less of their needs and wants.
The tariff can benefit local clothing manufacturers and allow them to increase their output. The higher price for imports p2 causes a contraction in domestic demand and an expansion in domestic supply. Overall, this causes the quantity of imports to fall from q1q2 to q3q4 and it also causes an increase in domestic output from 0q1 to 0q3. Extract A mentions that a clothing factory in Kigali was previously operating at just 40% capacity as it was 'hard to compete'. Local clothing manufacturers would now be relatively more competitive so they would be able to sell more clothes to consumers and local traders who were previously importing used clothing.
However, the overall impact on consumers and manufactuers might depend on how the government use the tax revenue generated from the tariff. The government could actually improve outcomes for consumers if they are able to use the revenue to subsidise local clothing, or to improve services like healthcare and education.
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