1) 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.

 

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

 

3. Why do consumers gain from imports? Why do consumers lose from a tariff?

 

4. Why doesn't everyone in a nation gain from exporting a good?

 

5. For many years Japan conducted extremely slow, detailed, and costly safety inspections of all U.S. cars imported into Japan. In terms of trade, what was the effect of this inspection? How did the inspection affect the price and quantity of cars in Japan?

 

6. Suppose the U.S. government imposes a tariff on sugar. How does the tariff affect the price of sugar? How does it affect U.S. sugar consumers? U.S. sugar producers?

 

7. Suppose the U.S. government imposes an import quota on sugar. How does the import quota affect the price of sugar? How does it affect U.S. sugar consumers? U.S. sugar producers?

 

8. What is the dumping argument for protection? What is its flaw?

 

9. How do you respond to a speaker who says that we need to limit auto imports from Japan in order to save U.S. jobs?

 

10. Why is it incorrect to assert that trade with countries that have lax environmental standards needs to be restricted?

Answer:

1) France- It will be recorded as credit item under Current Account of Balance of Payment Account.

United States- It will be recorded as a debit item under Current Account of Balance of Payment Account.

2) It will decrease the domestic production and increase the domestic consumption.

3) Consumers gains from imports because there is decrease in price of imported commodity and consumers looses from tariff because tariff increases the price of imported commodity.

4) Domestic consumers looses when a good is exported from a country because it increases the price of the good.

5) Inspection by Japan will increase the price and decrease the quantity of Cars in Japan.

6) Tariff on Sugar will increase the price of sugar, increase the production and decrease the consumption of Sugar in United States.

7) The quota will increase the price of sugar, increase the production and decrease the consumption of Sugar in United States.

8) Dumping aims at selling a product in the foreign at a lower price than in the home market.

9) I believe that it is not a good idea to put any trade restriction on Japan imports.

10) Trade with countries that have lax environment standard needs to be restricted is incorrect because it is very difficult to compare environmental standards between the countries.

Step-by-step explanation

1) French Cheese is sold in the United States.

France- It will be considered as exports of France to United States and It will be recorded as credit item under Current Account of Balance of Payment Account. This is recorded as credit because it leads to inflow of foreign exchange from United States.

United States- It will be considered as imports of United States from France and will be recorded as a debit item under Current Account of Balance of Payment Account. This is recorded as debit item because it leads to outflow of foreign exchange to France as a payment of imports.

2) When a good is imported in the country then the supply of the good increases in that country which decreases the price of the good. The decrease in price of good decreases the profit margin of the producers and they decrease the production of good but it increases the quantity demanded of the good.

This is explained with the help of diagram below:

Initially the economy is at point E, where the price and quantity demanded of the good is P and Q respectively. When the good is imported in the country, it increases the supply of the good and supply curve shifts from SS to SS' and new equilibrium is achieved at point E' where prices are decreased to P' and quantity demanded is increased to Q'.

Thus, domestic consumer gains and domestic producer looses from imported commodities.

3) The reason why consumers gains from imports is explained in the (2) part of the question.

Tariff is a tax or a duty which is levied on the commodity that is imported from other country. It is a form of protection policy whereby domestic producers are protected from foreign competition. The main aim of the policy is to impose restrictions on cheap imports and encourage domestic production. The immediate effect of the policy is that there is increase in the price of the good by the amount of tariff which decreases the amount of quantity demanded. The consumers now have to pay higher price for the product and consumes less quantity.

4) When a good is exported from country then the supply of the good in the domestic country decreases which increases the price of the good and decreases the quantity demanded of the good in the domestic country. This is shown with the help of diagram below:

Initially the economy is at point E, where the price and quantity demanded of the good is P and Q respectively. When the good is exported from the country, it decreases the supply of the good and supply curve shifts leftwards from SS to SS' and new equilibrium is achieved at point E' where prices are increased to P' and quantity demanded is decreased to Q'.

Thus, domestic consumer looses from exported commodities.

5) The inspection by Japan of all U.S. Cars is a type of non tariff trade barrier. It is decreasing the amount of auto imports from U.S. and is protecting its domestic auto manufacturers from foreign competitors. This type of trade barrier will lead to decrease in volume of trade and will not improve terms of trade between U.S. and Japan. There will be decrease in imports of Japan which will decrease the supply of autos in the country and will put upward pressure on the prices of the car.

Thus, inspection by Japan will increase the price and decrease the quantity of Cars in Japan.

6) The effect of tariff on the price of sugar and sugar consumers and producers is shown with the help of diagram below:

Initially free trade price is OP, where OQ''' amount of sugar is consumes by U.S. consumers out of which OQ amount is domestically produced and QQ''' amount of sugar is imported, After the imposition of tariff by U.S. government there is increase in price from OP to OP' and quantity consumed decreases to OQ'' out of which OQ' is domestically produced and QQ'' is the amount of imports. Thus there is decrease in the amounts of imports and increase in domestic production after imposition of tariffs.

The loss in consumer surplus is shown by the area equal to 1+2+3+4,

There is gain in producer surplus shown by area equal to 1.

7) Import Quota is a type of restriction policy in which government imposes certain limit on the quantity of good imported in the country. When imports are restricted in the country then there is decrease in supply of the good in that country which increases the price of the good and encourages domestic production. But increase in price decreases the consumption of the good in the country. Therefore, consumer looses with the imposition of import quota and producer gains with the imposition of import quota.

8) Protection for domestic industries is required against the practice of dumping by foreign firms. It means selling a product at a cheaper price than in the home market. It aims at flooding the foreign market with cheaper and low quality products and ruins domestic producers.

High tariff is imposed by the importing country to protect domestic industries from the practice of dumping.

9) We need to limit auto imports from Japan to save US jobs.

I believe that it is not a good idea to put any trade restriction on Japan imports because Japan will retaliate and it will decrease its other imports from U.S. For Example- Suppose Japan retaliates by putting trade restrictions on corns imports from U.S.. So, U.S. will save automobile jobs at the expense of Farmers.

Thus, free trade is a better option which will maximize efficiency and output.

10) Trade with countries that have lax environment standard needs to be restricted is incorrect because You cannot compare the standards and it is not necessary that strict environmental standard will effect the competitiveness of the industry. Sometimes, it is the case that it helps to minimize the social cost. It is not necessary that if there are high environmental standards in a country then it will be followed. So, it depends on country to country how they follow the environment rules and you cannot stop trading with them because of lax environmental standards because it is very difficult to compare the environment standards in different country.

It is not necessary that high environmental standards will reduce manufacturing competitiveness of the country.

PFA