A small country imports industrial goods and exports agricultural goods. Both industry and agriculture are perfectly competitive.

A small country imports industrial goods and exports agricultural goods. Both industry and agriculture are perfectly competitive. A new minimum wage law raises wages in industry but not in agriculture. However, all workers displaced from industry as a result of the new, higher wage find employment in agriculture. Is an import tax on industrial goods the best way to deal with any resulting problems? Why (not)?

USE OF APPROPRIATE DIAGRAMS TO ANSWER EACH QUESTION IS ENCOURAGED.

Expert Solution

As a result of the rise in wages in industry, manufacturers started reducing the labor force in the manufacturing industry. As a result many of the labors lost their jobs. However, all workers displaced from industry find employment in agriculture.

As a result of the import tax on industrial goods, the imported goods become more expensive and thus the demand of such goods reduces in the market. Due to this customers would be inclined towards products manufactured in Home country and thus the demand of domestic goods increases. In order to suffice the increased demand, the suppliers again need to supply more and thus the industrial production increases, which would require more labor force in the industry.

The goods supplied are not sufficient in the home country, so there is shortage of supply. By importing the goods, the supply would increase. Once the tariff is imposed on the imported goods, the price rises and thus the demand of imported goods come down.

Rahul Sunny answered 2 years ago

4. If a country increases the amount of goods it imports but its exports remain unchanged:...

4. If a country increases the amount of goods it imports but its exports remain unchanged: A. AD would not shift. B. AD shifts right. C. AD shifts left. D. AD would shift but in a random direction. 7. Rising confidence in the economy shifts the aggregate demand curve to the left. A. False B. True 8. An increase in net export spending will result in a(n): A. increase in aggregate supply. B. decrease in aggregate supply. C. increase in...

A small country both produces and imports bread, the world price of which is $1 per...

A small country both produces and imports bread, the world price of which is $1 per loaf. Production of the bread causes a pleasant smell, which the producers of bread are unable to charge for, and which the people in the country enjoy. In fact, it has been ascertained that the value of this smell to society is $0.50 per loaf. 1. Show and explain why, in the absence of any other policy, a tariff on bread in this country...

Explain why a perfectly competitive agricultural firm (a farm) is perfectly efficient in the long run...

Explain why a perfectly competitive agricultural firm (a farm) is perfectly efficient in the long run having achieved allocative efficiency,productive efficiency, and zero economic profit.

compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient...

compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because thery a. do not lower the product price if put prices fall b. waste resources by producing an excess amount of output c. restrict their output levels to maximiz profirs d make economic profits in the long run. which of the following statement is true about a firm in a perfectly competitive market a. the demand for its product is a downward sloping...

Switzerland, a country with a special status outside the EU, banned the imports of agricultural products...

Switzerland, a country with a special status outside the EU, banned the imports of agricultural products linked with the usage of specific pesticides and implemented restrictive policies for crops derived from agricultural productions that use any kind of chemical and natural product, which is not related to the protection of the environment, food safety or health. a) Explain the factors that have brought Switzerland to implement such restrictions, commenting on this trade policy approach. (10 points) b) Now suppose that...

3. Factors that influence international trade In the 1950s, imports and exports of goods and services...

3. Factors that influence international trade In the 1950s, imports and exports of goods and services constituted roughly 4% to 5% of U.S. GDP. In recent years, exports have accounted for approximately 12% of GDP, while imports have more than tripled to over 15% of GDP. Which of the following help to explain the increase in international trade and finance since the 1950s? Check all that apply. International trade agreements such as the North American Free Trade Agreement (NAFTA) Higher...

Let us assume the situation like in the lecture; the home country exports cloth and imports...

Let us assume the situation like in the lecture; the home country exports cloth and imports food. Please explain with graph(s)what will happen, if the relative price of food increases? Particularly, derive A What will happen with the slope of the iso-value line? B What will happen with the production quantities in the home country (Will more or less food produced and will more or less cloth produced) ? Why? C What will happen with the terms of trade of...

Selco, a U.S. Company, imports and exports tools, shop equipment, and industrial construction supplies. The company...

Selco, a U.S. Company, imports and exports tools, shop equipment, and industrial construction supplies. The company uses a periodic inventory system. During April the company entered into the following transactions. All rate quotations are direct exchange rates. April 3 Purchased power tools from a wholesaler in Japan, on account, at an invoice cost of 1,600,000 yen. On this date the exchange rate for the yen was $.0072. 5 Sold hand tools on credit that were manufactured in the U.S. to...

If the United States imports more goods from abroad than it exports, then foreigners will tend...

If the United States imports more goods from abroad than it exports, then foreigners will tend to have a surplus of US dollars. What will this do to the value of the dollar with respect to foreign currencies? What is the corresponding effect on foreign investments in the United States?

Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods...

Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods (which requires labor and capital), and is currently in autarky equilibrium. The country just finds that the international price ratio of agriculture relative to manufactured goods, i.e., PA/PM, in the world market is LOWER than the price ratio in its domestic market. Use production-possibilities frontier (PPF) and indifference curves to show how this country may gain from trade and identify the trade triangle, including...

Question