Ever since the idea of the United Kingdom (UK) leaving the European Union (EU) was introduced, the movement has been gaining traction. Nicknamed “Brexit” this movement aims to give the UK independence from the EU in order to become more self sustained and maintained. Although this may seem like a good idea to the population of UK, there come many economic problems with it. A Government Minister stated that there is no guarantee that UK will be able to keep their Free Trade Agreements (FTA) that are under the EU. If such event does happen if Brexit is successful, the UK will lose FTAs with more than 65 countries. This will leave the UK to use tariffs using World Trade Organization (WTO) rules. Furthermore, the relationship between the UK and EU will worsen as a result of this. However, assuming that …show more content…
The specific policy being used is tariffs which forces importers to pay a tax to the government of the country in which they are purchasing from. The reason to impose such a policy is so that the price for foreign goods is slightly higher than domestic goods. Making the sales of domestic goods increase and decreasing foreign sales as it can be seen in Figure 1. Before the tariff, the domestic revenue was (Q1) (P1) while foreign revenue was (Q2-Q1) (P1). After the tariff, the domestic revenue increases to (Q3) (P2) and foreign revenue decreases to (Q3-Q4) (P2). Furthermore, it can be seen in the graph that there will be government revenue from the tax that importers pay. This money can then be used by the government to invest in public sectors. However, using tariffs also do come with some consequences. The government is ultimately going to have efficiency and welfare loss by letting inefficient producers do the work when cheaper and more efficient alternatives can be found by importing. This loss is represented by the two triangles beside the government revenue