INTERRELATED PRODUCTS AND THE EFFECTS OF AN IMPORT TARIFF

This article demonstrates that when a second product is introduced into the traditional single-product, partial equilibrium model, the predictions of the impact of a tariff on prices are no longer determinate In contrast to the traditional single-product partial equilibrium framework in a two-or-more product, partial equilibrium model, an import tariff may raise, lower, or leave unchanged the price in either country examined The empirical result depends on the relationship between own and cross-price elasticities The empirical example developed illustrates these relationships and shows how critical the values of own and cross-price elasticities are to empirical policy analysis