Question

You run a small community or country and your primary output is the growing of wheat and the sewing of socks. You are able to produce both products for a low cost so your residents do not have to pay very much for these two products. One day, another country contacts you with the offer of the same products at an even lower price. If you allow them entry into your community, your residents will save money. However, those who run these businesses will be negatively affected. Assuming you do let them sell in your community, which of the "controls" described in your textbook would you use to control the situation and why do you think this would work well?

Answer 1

When the foreign country selling wheat and socks at a lower price to the home country , the home country may allow the import, but to safeguard the domestic business stakeholders , the home country can impose the controls related to Tariffs and quotas to save the domestic market.

The home country can increase the import tariff of the goods in such a way that the landed cost of the imported goods will be high and imported goods will have no price advantage. This will remove any price advantage of the forign imports and domestic goods will have a level playing field in terms of price.

The home country may also fix the quota of the monetary volume of the goods which can be imported , that way the unrestricted import of the godds and flooding of the domestic market with imported goods will be avoided. This will keep a part of the market demand intact for the domestic players.

A combination of the above controls can work well to save the domestic business interests from the onslaught of cheap foreign imports.