Chapter 21: Problem 12
If there is a net loss to society from tariffs, why do tariffs exist?
Chapter 21: Problem 12
If there is a net loss to society from tariffs, why do tariffs exist?
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Get started for freeConsider two groups of domestic producers: those which compete with imports and those which export goods. Suppose the domestic producers that compete with imports convince the legislature to impose a high tariff on imports-so high, in fact, that almost all imports are eliminated. Does this policy in any way adversely affect domestic producers that export goods? If so, how?
Suppose the landmass known to you as the United States of America had been composed, since the nation's founding, of separate countries instead of separate states. Would you expect the standard of living of the people who inhabit this landmass to be higher, lower, or equal to what it is today? Why?
The desire for profit can end up pushing countries toward producing goods in which they have a comparative advantage. Do you agree or disagree? Explain your answer.
Some economists have argued that, because domestic consumers gain more from free trade than domestic producers gain from (import) tariffs and quotas, consumers should buy out domestic producers and rid themselves of costly tariffs and quotas. For example, if consumers save $$\$ 400$$ million from free trade (through paying lower prices) and producers gain $$\$ 100$$ million from tariffs and quotas, consumers can pay producers something more than $$\$ 100$$ million but less than $$\$ 400$$ million and get producers to favor free trade too. Assuming that this scheme were feasible, what do you think of it?
Although a production possibilities frontier is usually drawn for a country, one could be drawn for the world. Picture the world's production possibilities frontier. Is the world positioned at a point on the PPF or below it? Give a reason for your answer.
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