Question

1. How does a tariff lead to production cost inefficiencies?

2. What would happen to the US standard of living if the United States withdrew completely from international trade?

Answer 1

1. A tariff is a tax on imported goods or services aimed at raising the price of foreign products to make domestically produced substitutes more attractive to consumers. A tariff is a form of protectionism for domestic firms.

Tariffs may cause production to shift to smaller firms with fewer economies of scale.Due to protectionism,the inefficiency is possible that in markets where there is little competition, the output of firms will be low, and average costs will be relatively high. This is likely to occur if a few firms, or just one, dominate the market, as in the case of oligopoly and monopoly.

2. If U.S withdraw from international trade, the main effect was exports.As export create more jobs,it loses jobs of many industries more likely manufacturing industry.After losing jobs,trade decrease where economic growth becomes limited.The cost of living is higher in US, standard of living decrease as it limits the diversification like in diet, products or services.Although US produces enough for itself but it imports more rhat exports. It may not show huge impact in short run but definitely in the long run, changes might happen