Question

3. Publie Policy Choose ONE of the following topievissues, or use the one that you researched for your public Belcy essay, and then give the information listed in A, B, and C below for that pollution or another negative externality one issue . social security health care international trade "poverty - business regulation For the issue you chose, explain in three separate paragraphs: A Why the government should have policies that deal with the issue. (5) B. What policy the government should have to deal with the topic. (5) Why your suggested policy is the best way to deal with the issue using economic reasoning. (5) 4. Trade: A) Define the trade related terms tariff and "quota". (4) B) Explain how trade barriers affect the market price and quantity of the good targeted by the tariff or quota. (6) C) Give a reason used to support protectionist (anti-free trade) actions and the economist response to the protectionist policy. (5) 5. Market Competition Most of the product market competition in the United States is categorized as either monopolistic competition or oligopoly Compare and contrast the characteristics of these two types of market competition. Include examples in your comparison. (Do not answer this part of the question with a chart.) (10) A) Identify and describe a government action that would increase or maintain the amount of competition in U. S. product markets. (5) B)

Answer 1

4. Trade :

A) Tariff is levied by the government of domestic economy on the transactions of goods and services, imported from the foreign countries, in the form of tax. Tariff lead to higher price of imported good in the domestic economy.

Quota is another tool which is used by the domestic government to restrict trade.Quota is impose in the form of, total physical quantity or total value of a particular commodity that can be imported from the foreign country in a given period of time.

B) When trade barriers are used by the government to restricted trade, it lead to increased price of imported commodity in the domestic market. As we know that, increased price results in lower quantity demanded of that commodity. Therefore, at higher price of a particular imported goods(on which trade barriers are used), lead to lower quantity demand of that good in domestic economy. It is Shown in below diagram:

C) In most of the case trade protectionist (anti-free trade) actions are taken to protect domestic industries or particular area/sector of the economy. Such actions are taken to protect domestic economy from foreign competition, that may lead to adverse impact on the economy.

Economist response to the protectionist policy by considering its impact in the short run and in the long run:

In the short run, when government uses protectionist policy, it lead to higher price of imported commodity in the domestic market . Due to increased price, there is less demand of that good by individual businesses and consumers in the economy. It will directly benefit individual businesses and government. due to higher price of imported goods domestic businesses earn more profits and on the other side, by using protectionist policy government generate revenue.

Where as in the long run, would not get benefit as they experience in the short run by protectionist policy, because now due to protectionist policy,domestic businesses may not face any major competition to improve their performance. it lead to decline in their profits due to greater availability of substituted goods in the long run.