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Chapter 5: Q1. (page 222)

In 2015, the United States proposed a tariff on steel imports from China. Steel is input in a large number and variety of U.S. industries. Explain why political lobbying to eliminate these tariffs is more likely to be effective than political lobbying to eliminate tariffs on consumer goods such as sugar or clothing.

Short Answer

Expert verified

The number of producers who use steel as input for production is fewer in numbers than buyers who deal with consumer goods. These producers are aware of the loss because of the tariff and use lobbyists to eliminate it, while consumer goods buyers are generally not aware of the losses to them because of the tariff.

Step by step solution

01

Coordination between the steel buyers and consumer goods buyers

The producers that use steel as input will be fewer in numbers than buyers who use consumer goods such as clothing and sugar. They will coordinate easily with each other and try to influence the government to eliminate steel tariffs through lobbying activities.

On the other hand, it is very complex for the consumer goods buyers to coordinate with each other because of huge numbers.

02

Extent of information about the tariff price 

The tariff on consumer goods causes very little loss to each buyer. Generally, they are not aware of the loss because of the tariff price. So they do not participate actively to influence the government and eliminate the tariff on consumer goods.

But the producers using steel are well aware of the loss because of the increase in the price of steel in the market due to an increase in the tariff. Thus, they will actively participate in lobbying to eliminate the tariff on steel.

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Most popular questions from this chapter

Suppose the world price of butter is \(0.50 per pound and the domestic price in autarky is \)1.00 per pound. Use a diagram similar to Figure 5-10 to show the following.

a.If there is free trade, domestic butter producers want the government to impose a tariff of no less than\(0.50 per pound. Compare the outcome with a tariff of \)0.25 per pound.

b.What happens if a tariff greater than $0.50 per pound is imposed?

Over the years, the WTO has increasingly found itself adjudicating trade disputes that involve not just tariffs or quota restrictions but also restrictions based on quality, health, and environmental considerations. Why do you think this has occurred? What method would you, as a WTO official, use to decide whether a quality, health, or environmental restriction is in violation of a free-trade agreement?

What effect do you think the strike will have on Mexican grape producers? Mexican grape pickers? Mexican grape consumers? U.S. grape pickers?

In the United States, the opportunity cost of 1 ton of corn is 50 bicycles. In China, the opportunity cost of 1 bicycle is 0.01 tons of corn.

a.Determine the pattern of comparative advantage.

b.In autarky, the United States can produce 200,000 bicycles if no corn is produced, and China can produce 3,000 tons of corn if no bicycles are produced. Draw each country’s production possibility frontier assuming constant opportunity cost, with tons of corn on the vertical axis and bicycles on the horizontal axis.

c.With trade, each country specializes in its production. The United States consumes 1,000 tons of corn and 200,000 bicycles; China consumes 3,000 tons of corn and 100,000 bicycles. Indicate the production and consumption points on your diagrams, and use them to explain the gains from trade.

Suppose the government imposes an import quota rather than a tariff on butter. What quota limit would generate the same quantity of imports as a tariff of $0.50 per pound?
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