Question

3. What are three problems with trade restrictions? What are three reasons often given in support of trade restrictions?

4. Tariffs reduce the volume of imports. Do tariffs also reduce the volume of exports? Explain your answer.

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5. Suppose that the comparative-cost ratios of two products-mangoes and sardines-are as follows in the hypothetical nations of Mangolia and Sardinia.

Mangolia: 1mango = 2 cans of sardines

Sardinia: 1 mango = 4 cans of sardines

In what product should each nation specialize Explain why the terms of trade of 1 mango = 3 cans of sardines would be acceptable to both nations.

Answer 1

3).

a) Tariffs are one barrier that make exporting your goods more difficult by increasing the cost to your international customers.

b) If the feds raise the tariff on imports, then the cost of producing many exports will rise. So, for example, if the feds impose a tariff on steel imports, the cost of producing cars will rise.

c) Non tariff trade barriers are laws or regulations a country enacts to protect domestic industries against foreign competition. Non tariff barriers can decrease market opportunities for U.S. exports and give unfair competitive advantages to products from other countries.

Arguments against free trade (for traderestrictions) is the argument that the economy will see a huge loss of domestic jobs to cheaper workers abroad. Economists response by explaining that while sole jobs will be destroyed, free trade will actually create more jobs, outweighing the ones lost internationally. Next opponents of free trade state that by allowing free trade to transpire we are setting ourselves up to be dependent on another country for a certain good/service,during times of war or other catastrophic events, this can be used against us as a bargaining chip. However, still economists argue that this is a microscopic way of looking at the economy and competition are needed.