Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies reduce unemployment in one U.S. industry but increase it in another U.S. industry?

Short Answer

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The usage of artificial trade barriers will reduce unemployment in the import industry and increase unemployment in the export industry in the U.S. The tariff put a tax on imports, and import quotas restrict the quantity to import.

Step by step solution

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Step 1. Artificial trade barriers

The artificial trade barriers are the barriers a country imposes to protect the domestic producer, i.e., tariff and import quotas. The tariff is the tax imposed on the imported product by the importing nation's government. The quotas are the limiting the number of imports of the products.

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Step 2. Explanation

When the U.S. imposes a tariff or quota on imports, it creates a disturbance in its actual employment level. The foreign nations also impose some non-tariff barriers on U.S. goods; the U.S. export will reduce.

As the U.S. export reduces, the jobs in that sector will also reduce; thus, deviating from the full employment level. Hence, artificial trade barriers in the U.S. decrease unemployment in the import sector as the domestic import substitution production increases and increase unemployment in the export sector.

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Most popular questions from this chapter

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula ≡ 2 cans tuna fish

Tunata: 1 can baby formula ≡ 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1/2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries?

Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?

Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

What form does trade adjustment assistance take in the United States? How does such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?

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