Question

Chapter 16 is about international trade and tariffs. Suppose that a huge tariff was imposed on steel imported into the US. How would that affect the cost of the cars and subsequently employment in the US auto industry?  

Answer 1

TARIFF-

• tariff is a duty levied by the government to curtail the demand of a good or to prevent the Balance of Payment showing adverse accounting and financial results.
• when tariff is levied on a goods or service then it is paid by importer and ultimately borne by the ultimate/final user of the product.
• in the given situation the tariff is imposed on steel,therefore the price of steel in the economy will naturally goes up.

STEEL AND THE CAR INDUSTRY-

• cars majorly utilizes and make the demand of steel at a large scale.if the price of steel goes up then the cost of making a car would also increase and therefore the price of the car is to be increased to maintain the same level of profit margin.
• now if the price of the car in the economy is increased then the demand for car would decline and as a result firm would be discourage to produce more because of experiencing a decline in the numbers of car demanded.

IMPACT ON EMPLOYMENT-

when the auto industry would make less cars than the earlier level then it would not be able to provide employment to same level of people,therefore there would be unemployment in the economy concerned with the car industry workers. and USA economy would face a short run recession and government would be liable to provide assistance in this regard.