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Chapter 20: Q10. (page 430)

How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? How might import competition lead to quality improvements and cost reductions by U.S. firms?

Short Answer

Expert verified

The import tariff leads to a decrease in the nation's export that levies tariffs, like every other nation also imposes import tariffs.

The import competition leads to innovative ways of production; thus, it reduces cost and improves the quality of the U.S. firms.

Step by step solution

01

Step 1. Protective tariff

The government imposes tariffs to protect the domestic producer; thus, reducing the number of imports. The other nations also impose tariffs to protect their producers as a response, reducing the export of the nation that levied tariffs. Thus, protective tariffs reduce both the imports and the exports of the nation.

02

Step 2. Import competition

The import competition improves the quality of the U.S. goods to gain shares in the global market. The U.S. firms have to make their imports different from other nations' firms. As the quality of the product increases, it will also increase the export; thus, as export increases, then production also rises. The increase in the production level also decreases the cost of production as the firm competes with the cost side.

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Most popular questions from this chapter

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?

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.


China Production Alternatives

Product

A

B

C

D

E

F

Apparel (in thousands)

30

24

18

12

6

0

Chemicals (in tons)

0

6

12

18

24

30


U.S. Production Alternatives

Product

R

S

T

U

V

W

Apparel (in thousands)

10

8

6

4

2

0

Chemicals (in tons)

0

4

8

12

16

20

  1. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

  2. What is the total gain in apparel and chemical output that would result from such specialization?

  3. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1陆 units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two countries separately. Referring to your graphs, answer the following:

New Zealand鈥檚 Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

A

B

C

D

Apples

0

20

40

60

Plums

15

10

5

0


Spain鈥檚 Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

R

S

T

U

Apples

0

20

40

60

Plums

60

40

20

0

  1. What is each country鈥檚 cost ratio of producing plums and apples?

  2. Which nation should specialize in which product?

  3. Show the trading possibilities lines for each nation if the actual terms of trade are 1 plum for 2 apples. (Plot these lines on your graph.)

  4. Suppose the optimum product mixes before specialization and trade were alternative B in New Zealand and alternative S in Spain. What would be the gains from specialization and trade?

Quantitatively, how important is international trade to the United States relative to the importance of trade to other nations? What country is the United States鈥� most important trading partner, quantitatively? With what country does the United States have the largest trade deficit?

What is the offshoring of white-collar service jobs, and how does it relate to international trade? Why has offshoring increased over the past few decades? Give an example (other than that in the text) of how offshoring can eliminate some U.S. jobs while creating other U.S. jobs.
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