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ECO402 Microeconomics Assignment 2 Solution Spring 2013

Due to large consumption of edible oil, Pakistan faced severe shortage of its domestic production from last few years. This demand supply gap has been bridged through import of edible oil in large quantity. High edible oil imports are causing a huge burden on the country’s foreign exchange earnings. The main edible oils consumed by Pakistanis are vegetable/palm oil, cotton seeds oil, mustard oil,sunflower seeds oil and canola oil etc. Most of the edible oil is purchased by households, food processors industries, restaurants and hotels. To overcome reliance on imports, Pakistan governmenthas been working on many edible oil based projects from last few years. Suppose in year 2013, due to effective government measures and imports of edible oil, surplus of quantity is created in domestic market which in turn has reduced its price. To handle this situation, government considers the policy of imposing tariff on imports of edible oil.
Requirement: Being a student of Economics, discuss how imposition of import tariff can affect the domestic edible oil industry particularly and the economy as a whole. Explain logically.

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