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Chapter 2: Problem 13

During the 1928 U.S. presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should import only products that could not be produced here. Briefly explain whether this policy would be likely to raise average income in the United States.

Short Answer

Expert verified
Herbert Hoover's policy of restricting imports to only goods that could not be produced domestically might not increase average income in the U.S. While it could potentially benefit certain domestic industries, overall it would likely lead to less efficient resource allocation, lower total output, higher consumer prices, and decreased real income.

Step by step solution

01

Understanding the Concept of Trade

Trade between countries allows them to specialize in the production of goods and services they have a comparative advantage in. This means they can produce these items more efficiently (at a lower opportunity cost) than other goods or services. This leads to a more efficient allocation of resources and an increase in total output and income within participating countries.
02

Evaluating the Impact of Import Restrictions

Implementing a policy that restricts imports to only products that could not be produced in the United States would mean that the U.S. would have to produce a wider range of products domestically. If the United States doesn't possess a comparative advantage in producing these goods, it would likely lead to less efficient allocation of resources, lower total output, and potentially lower average income.
03

Considering the Role of Domestic Industries

While such a policy might protect and perhaps even bolster incomes for workers in certain domestic industries, it could also lead to higher prices for consumers, which would likely decrease their real income. Furthermore, it would limit the variety of goods available to consumers.

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Most popular questions from this chapter

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