a French cheese is sold in the United States. Classify this transaction from the vantage point of the United States and from the vantage point of France.

b. How does international trade affect the domestic production and domestic consumption of goods imported into the country?

c Why do consumers gain from imports? Why do consumers lose from a tariff?

Answer:

a) US vantage point: Cheese (Import) and air transportaion (Export)

French Vantage point: Cheese (Export) and air transportaion (import)

b) France has comparative advantage in cheese production compared to the USA. In other words, France has lower opportunity cost to produce cheese making it less costlier for US consumers as compared to US produced cheese.The imports of cheese keeps the cheese price competitive in the US markets. As a result, the consumers could consume moreat low prices. US cheese producers also need to keep costs under control to sustain in the market.

c) Consumers gain from imports due to lower equilibrium price in cheese market (local produced + imported cheese). The tariff decrease the consumer surplus by making the imports costlier.