Part 5/7:
When tariffs are introduced in this banana economy, they elevate the prices of imported bananas. This adjustment renders the domestic bananas more competitive, leading to an uptick in domestic production. While consumers face higher prices and a reduction in consumer surplus, domestic producers enjoy an improved economic position as they can sell their goods at elevated prices, albeit at the cost of overall consumer welfare.
Additionally, the government benefits from tariff revenues; however, this creates a new layer of complexity as it introduces deadweight loss—a scenario where the economic surplus of society declines.