Question

The country in question is Brazil.

        Now consider the possibility of applying tariffs to one of the goods or services imported from the partner country to the U.S. and analyze the perspectives of different groups in the U.S. by answering the following:

• Which good or service have you chosen to consider?
• What impact would a tariff on this good or service have on the production possibility curve in the U.S.? On Gross Domestic Product (GDP) in the U.S.? On the standard of living in the U.S.?
• Who in each country might benefit from such a tariff and in what way(s) might they benefit?
• Who in each country might be harmed by such a tariff and in what way(s) might they be harmed?

Answer 1

   A tariff is an attempt to protect indigenous goods and services from foreign competition. It is a measure to discourage imports especially of certain kinds of goods that could well be produced in the home turf itself.

Suppose we consider capital goods like machines and plants as well as the services of technicians to provide the latest technology to operate these capital goods, A tariff by the US government on importing such goods from Brazil would mean that the Production Possibility curve , showing the combination of two goods ( for example consumer goods and capital goods) will have a newer combination of producing more capital goods at the coast of converting the resources from the production of consumer goods to capital goods – concept of increasing marginal opportunity cost.

The Production Possibility curve assumes that resources are given and hence it will become imperative to assess if the given resources and the opportunity cost of converting them to produce more capital goods benefit the US and give it a comparative advantage to produce it on the home turf rather than importing them.

Since capital goods act as facilitators of producing final goods and services for final consumption by various entities in an economy like households, firms, government –production of more capital goods will lead to diversion of resources from the production of consumer goods hence there is a possibility that in the short run output falls there affecting the GDP adversely though over the long run the effects can be effectively countered by the benefits of using these capital goods to produce more and more consumer or final goods thereby leading to higher levels of income and employment.

Since capital goods act as facilitators of producing final goods and services for final consumption by various entities in an economy like households, firms, government –production of more capital goods will lead to diversion of resources from the production of consumer goods hence there is a possibility that in the short run output falls there affecting the GDP adversely though over the long run the effects can be effectively countered by the benefits of using these capital goods to produce more and more consumer or final goods thereby leading to higher levels of income and employment.