Page 28 - Policy Economic Report - Jan 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

cheese, and licenses would be granted to certain companies, allowing them to act as importers.
This creates a restriction on competition and increases prices for consumers.

• Voluntary Export Restraints (VERs)- They are self-imposed limits by an exporting country on the
quantity of specific goods it sends to another country, often negotiated to protect the importing
nation's domestic industries from competitive pressure, acting as a non-tariff trade barrier that
avoids formal import quotas or tariffs

How Do Tariffs Affect Prices?

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to
reduce their prices from increased competition, and domestic consumers are left paying higher prices as
a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive
market to remain open.

The figure below illustrates the effects of world trade without the presence of a tariff. In the graph, DS
means domestic supply, and DD means domestic demand. The price of goods at home is found at price P,
while the world price is found at P*. At a lower price, domestic consumers will consume Qw worth of
goods, but because the home country can only produce up to Qd, it must import Qw-Qd worth of goods.

When a tariff or other price-increasing policy is put in place, the effect is to increase prices and limit the
volume of imports. In the figure below, the price increases from the non-tariff P* to P. Because the price
has increased, more domestic companies are willing to produce the good, so Qd moves right. This price
increase also shifts Qw left. The overall effect is a reduction in imports, increased domestic production,
and higher consumer prices.

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