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Chapter 19: Q 27. (page 462)

Why might a low-income country put up barriers

to trade, such as tariffs on imports?

Short Answer

Expert verified

There may be various reasons for this move.

Step by step solution

01

Step 1. Definition

Trade barriers are government-induced restrictions on international trade. In accordance with the theory of comparative advantage, trade barriers are inimical to the world economy and decrease economic efficiency and effectiveness.

02

Step 2. Explanation

The reasons for tariff barriers are like:

Tariffs on imports protect domestic producers from competition.

It could also be done to avoid social unrest if there are a lot of small producers who would be dispelled of business if the local market were opened up to the foreign competition.

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Most popular questions from this chapter

Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?

If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

Does intra-industry trade contradict the theory of

comparative advantage?

How can there be any economic gains for a country from both importing and exporting the same good, like cars?

What is absolute advantage? What is comparative advantage?
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