chapter  3
23 Pages

Commodity Movements: Consumption and Welfare Aspects

The reader will recall that, whereas productive efficiency is affected by substitution between sources of supply of the same commodity, efficiency in exchange relates to substitution between consumer goods that are different in kind. Tariffs created intercountry differences between the price ratios of traded commodities; hence their removal will improve the efficiency of exchange through the equalization of these ratios. In common-sense terms, the domestic consumers were restricted in their demand for imported goods by the tariff, and, after tariffs have been eliminated, they can adjust consumption by purchasing more of higher-valued imported, and less of lower-valued domestic, goods.1