Question

Help with this econ open-ended questions, please

1.- Explain the ways in which a tariff distorts comparative advantage and international trade

2.- It is argued that a tariff may help promote employment in a single industry, but it is not likely to help employment in general. Discuss this.

Answer 1

1) Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Opportunity cost measures a trade- off. A nation with a Comparative advantage makes the trade-off worth it. the Benefits of buying its goods and services outweigh the disadvantages. The country may not be the best at Producing something but the good or service has a low opportunity cost for other countries to import. For example:- Oil producing nations have a Comparative advantage in chemicals. Their locally produced oil provides a cheap source of material for the chemicals when compared to countries without it. So, middle eastern countries and Mexico are Comparative with USA chemical production companies. Their chemicals are inexpensive, making their opportunity cost low. Natural resources, Technology, The product cycle, Tariffs are the main ways which distorts the Comparative advantages and international trade. Tariffs on imports may be applied in several ways like quantities, values, type of product etc.

2) It is really good for the domestic business firms to develops their business, after imposing high tariffs on imported items. this is because, it makes their domestic production relatively more competitive than imports. For example, agricultural tariffs have benefited European farmers as they have been protected form cheaper competitions.

Tariffs will increase governments revenue. However, it will be a small percentage of total tax revenue. if the tariffs is too high, then the UK may no longer to import the goods, so the government will not get any tariff revenue. if the tariffs increases on imported goods and services, really help the local producers by increasing the production of good and services. so, this will lead to higher employment opportunities for the local communities.

It is often argued that tariffs can help protect jobs. For example, if the US government place high tariffs on car imports, this can make US car industry more competitive. However, whist these jobs are quite obvious and visible. Less visible is the harmful effect on employment elsewhere in the economy.