AUTOMOBILE INDUSTRY

Automobile Industry

Automobile Industry

Part 2 - Government Policy

Tariffs

Potential Impact of Tariffs on the Supply and Demand of Australian Automotive Industry

Tariffs and subsidies give rise to a gap between the prices on the world market that is the world price and the price of the same goods within the country that is domestic prices. The concept of the terms of trade due to the international prices is that it is a ratio of prices in the foreign exchange of the country, for case in point, how many motor vehicle units can get in exchange? It is therefore important to know how rates and subsidies affect the relative supply and relative demand in Australian Automotive Industry. If Australia's long standing tariffs reduction timetable and further reduced tariffs on passenger motor vehicles and parts from 10 percent to 5 percent on 1 January 2010, its relative price in the Australia will be 5% above the world. It will be correspondingly lower domestic relative price of motor vehicles, which are oriented domestic manufacturers.

As a result, in this situation, Australian Automotive Industry will produce less motor vehicle, since any world relative price of the domestically produced motor vehicles will be lower. At the same time, the demand among the domestic consumers of motor vehicles will be greater on the Australian Automotive Industry. In terms of the total world market world relative demand for motor vehicles will increase (with RD1 to RD2), and the proposal falls (RS1 and RS2). The world price for motor vehicles grow (PC / PF)1 , (PC / PF)2 which will improve the terms of trade with reference to Australian Automotive Industry.

Impact of tariffs on the terms of trade according to the Australian Automotive Industry depends on the size of the country; the smaller the country, the smaller events in its economy could affect the world relative supply and demand of motor vehicles. If the Australia enters the 10 percent from 5 percent tariff on imports, according to some estimates, the terms of trade for this very large country can improve by 5%. This means that the price of imported motor vehicles to the Australia will fall by 5% as compared with the prices of export motor vehicles (Benitah, 2001, 64-82). As a result of these divergent effects on the tariff domestic prices will rise by only 5%. But on the other hand, if such a tariff enters in other countries than Australia, their term of trade for Australian Automotive Industry is unlikely to change.

Effects of Tariff

The fundamental effects causing a tariff on imports, in the economy of Australia are as follows:

The tax effect is an increase in Australian revenue and products with inelastic demand, higher tax revenues, example is the import tariffs on motor vehicles. The resources generated in this way are becoming less relative important within Australia's income, while having a greater quantitative importance in the income of other countries.

The decline in imports mat subject to tariff for the consumption of products like motor vehicles and improved trade balance ...