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Tariffs and International Trade

1. "The United States can produce X more efficiently than can Great Britain. Yet we import X from Great Britain." Explain

2.Evaluate the following statements:

a. The extensive application of protective tariffs destroys the ability of the international market system to allocate resources efficiently.

b. In view of the rapidity with which technological advance is dispersed around the world; free trade will inevitably yield structural maladjustments, unemployment, and balance-of-payments problems for industrially advanced nations.

3. Suppose Japan agreed to a voluntary export restriction (VER) that reduced U.S. imports of Japanese steel by 10 percent. What would be the likely short-run effects of that VER on the U.S. and Japanese steel industries? If this restriction were permanent, what would be its long-run effects in the two nations on (a) the allocation of resources, (b) the volume of employment, (c) the price level, and (d) the standard of living?

4. Plan in detail five ways an organization can benefit from international trade.

Solution Preview

1. "The United States can produce X more efficiently than can Great Britain. Yet we import X from Great Britain." Explain
This is because of theory of comparative advantage. Comparative advantage is one of very important trade theory which states that countries will specialize in producing those products, which they are comparatively better at making relative to other products and other countries. Thus it leads to specialization and economies of scale. It is important concept as this leads to improvement in efficiency and effectiveness of the nations and organizations. Thus US can produce X more efficiently but it may producing other good say Y much more efficiently. Thus its focus will be Y to create more wealth and instead import X.

2.Evaluate the following statements:

a. The extensive application of protective tariffs destroys the ability of the international market system to allocate resources efficiently.
The reasons of protective tariffs are:
1. Unequal internal distribution of gains from the trade.
2. Haggling by countries over trade restrictions
3. ...

Solution Summary

The extensive application of protective tariffs is assessed.

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