Answer you bring up an interesting point i think i

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Unformatted text preview: nt. I think I might be less likely to bring up the benefits of offshoring if I were the person losing a job. It doesn’t mean the benefits of offshoring are not there, however. Remember, no economist is telling you that offshoring is all benefits or all costs; the economist is simply telling you that the situation involves both costs and benefits. An economist then usually goes on to say that the costs are often more visible than the benefits, such that the benefits are often ignored in our daily conversations while the costs are not. At the end of the day, you have every right to be either “for” or “against” offshoring. We are simply outlining the benefits and costs of offshoring so that you can make an informed choice. 3. Suppose Japan can produce either 100 cars and 30 television sets or 80 cars and 60 television sets. What is the opportunity cost of producing 1 television set? 4. What does it mean to say that country A has a comparative advantage in the production of computers? Critical Thinking 5. Jones is an attorney, and Smith is a gardener. Jones, however, is better at gardening than Smith is at gardening. Essentially, he can do what needs to be done in the garden in 30 minutes, whereas it takes Smith one hour. Does it follow that Jones should do his own gardening instead of hiring Smith to do it? Explain your answer. Applying Economic Concepts 6. How would you go about computing the opportunity cost (in dollars) of studying for a test? 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 407 Focus Questions Trade Restrictions What is a tariff? What is a quota? How do tariffs and quotas affect price? Why does the government impose tariffs and quotas if they are harmful to U.S. consumers? What impact did tariffs have on the Great Depression? What are the arguments for and against trade restrictions? Key Terms tariff dumping Trade Restrictions: Tariffs and Quotas Tariffs and quotas are the two major types of trade restrictions. A tariff is a tax on imports. For example, currently some Americans buy cars made in Japan, which are considered imports. Let’s say each car sells for $22,000. Now suppose the U.S. government places a $1,000 tariff on each car, raising the price of a Japanese car from $22,000 to $23,000. As a result, Americans will buy fewer Japanese cars. (Remember the law of demand: As price rises, quantity demanded falls.) A quota is a legal limit on the amount of a good that may be imported. Suppose Japan is sending 300,000 cars into the United States each year. The U.S. government decides to set a quota, or legal limit, on Japanese cars at 200,000 cars per year. In short, the U.S. government says it is legal for Japan to send 200,000 cars each year to the United States, but not one car more. The effect of the quota is to raise the price of Japanese cars. With a smaller supply of Japanese cars and with demand for Japanese cars constant, the price of Japanese cars will rise. (Recall that when the supply of a good falls and the demand for the good remains the same, the price of the good rises.) In effect, then, both tariffs and quotas raise the price of the imported good to the U.S. consumer. The U.S. Government and Producer Interests If tariffs and quotas result in higher prices for U.S. consumers, why does the government impose them? Government is sometimes more responsive to producer interests than consumer interests. In other words, government may be more responsive to U.S. car manufacturers than to U.S. car consumers. To see why, suppose 100 U.S. producers produce good X and 20 million U.S. consumers consume good X. The producers want to protect themselves from foreign competition, so they lobby for, and receive, tariffs on foreign goods that compete with what they sell. As a result, consumers end up paying higher prices. We’ll say that consumers end up paying $40 million more, and producers end up receiving $40 million tariff A tax on imports. Section 2 Trade Restrictions 407 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 408 Politicians, who generally respond to the most vocal interests, hear from those people who want the tariffs but not from those people who are against them. Politicians may thus mistakenly assume that consumers’ silence means that they accept the tariff policy, when in fact they may not. They may simply not find it worthwhile to do anything to fight the policy. QUESTION: Can you give me an example of producer interests getting the tariffs they seek? Why might the U.S. government place tariffs on imported steel? If you were a member of Congress, would you vote for or against such tariffs? more, for good X than they would have if the tariffs had not been imposed. If we equally divide the additional $40 million received among the 100 producers, we find that each producer receives $400,000 more as a result of tariffs. If we equally divide the additional $40 million paid among the 20 million consumers, we find that each customer pays $2 more as a result of tariffs. A producer is likely to think, “I should...
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