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One final reason why economists often treat the national interest argument    skeptically is that almost any product can be touted by lobbyists and politicians as vital to national security. In 1954, the United States became worried that it was importing half of the wool required for military uniforms, so it declared wool and mohair to be “strategic materials” and began to give subsidies to wool and mohair farmers. Although wool was removed from the official list of “strategic” materials in 1960, the subsidies for mohair continued for almost 40 years until they were repealed in 1993, and then were reinstated in 2002. All too often, the national interest argument has become an excuse for handing out the indirect subsidy of protectionism to certain industries or companies. After all, decisions about what constitutes a key strategic material are made by politicians, not nonpartisan analysts.

Key concepts and summary

There are a number of arguments that support restricting imports. These arguments are based around industry and competition, environmental concerns, and issues of safety and security.

The infant industry argument for protectionism is that small domestic industries need to be temporarily nurtured and protected from foreign competition for a time so that they can grow into strong competitors. In some cases, notably in East Asia, this approach has worked. Often, however, the infant industries never grow up. On the other hand, arguments against dumping (which is setting prices below the cost of production to drive competitors out of the market), often simply seem to be a convenient excuse for imposing protectionism.

Low-income countries typically have lower environmental standards than high-income countries because they are more worried about immediate basics such as food, education, and healthcare. However, except for a small number of extreme cases, shutting off trade seems unlikely to be an effective method of pursuing a cleaner environment.

Finally, there are arguments involving safety and security. Under the rules of the World Trade Organization, countries are allowed to set whatever standards for product safety they wish, but the standards must be the same for domestic products as for imported products and there must be a scientific basis for the standard. The national interest argument for protectionism holds that it is unwise to import certain key products because if the nation becomes dependent on key imported supplies, it could be vulnerable to a cutoff. However, it is often wiser to stockpile resources and to use foreign supplies when available, rather than preemptively restricting foreign supplies so as not to become dependent on them.

Problems

You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.

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The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in [link] and [link] .

Pepperland
Price ($) Qd Qs
60 230 180
70 200 200
80 170 220
90 150 240
100 140 250
Land of submarines
Price ($) Qd Qs
60 430 310
70 420 330
80 410 360
90 400 400
100 390 440
  1. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?
  2. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?
  3. Sketch two supply and demand diagrams, one for each country, in the situation before trade.
  4. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.
  5. If the Land of Submarines imposes an anti-dumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.
  6. Does your general answer change if the Land of Submarines imposes an import quota of 70?
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References

Kohut, Andrew, Richard Wike, and Juliana Horowitz. “The Pew Global Attitudes Project.” Pew Research Center . Last modified October 4, 2007. http://www.pewglobal.org/files/pdf/258.pdf.

Lutz, Hannah. 2015. “U.S. Auto Exports Hit Record in 2014.” Automotive News. Accessed April 1, 2015. http://www.autonews.com/article/20150206/OEM01/150209875/u.s.-auto-exports-hit-record-in-2014.

Questions & Answers

Max U(x,y)=xy+x+2y subjected to Px=2, Py=5 and M=51
Tsion Reply
Max U(x,y)=xy subjected to Px=2, Py=8 and M=160
Tsion
since price controls enacted by the government always has an unintended effects, the best way to control the market is to allow economic activities to run their cause
Japheth Reply
Microeconomics is the Study of allocating limited resources to solve the problems of optimizations.Explain this statement with suitable example.
Aruna Reply
Microeconomics is called price theory.Why?
Aruna
because it is a individual theory producer can set price acc to his benefit
mithlesh
who was the father of macroeconomics?
Eyob Reply
Alfred Marshall
Aruna
John Maynard Keynes
hosneara
What is economic
rafi Reply
Economy is everything...
Htoo
An economy is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. In general, it is defined 'as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of
Muhammad
Thanks
Abdullahi
will I be able to get Macroeconomic book?
Dhieumarial Reply
difference between monopolistic competition and monopolist markets
Nancy Reply
Cardinal utility theory assumes that consumers can
Siphelele Reply
why are price ceiling and price floor said to be efficient?
Mariateretia Reply
they are called inefficient, price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, thus creating an inefficient outcome.
Stuti
please how did we get fixed cost, marginal and average cost. thanks
Onovo Reply
can any one help me solve pie chart, bar chart and histogram. thanks
Onovo
any answers please, thank you
Onovo
solution on average cost and marginal cost
Onovo
p= -10+0.05p
Dil
Create the supply curve
Dil
plz help..
Dil
are u sure that it is p? it should have two variables. Qd should be there too
Stuti
if you have two variable, put different values of p to get q and you will have coordinates that u can use to make the supply curve.
Stuti
Fixed cost remain constant,when we r going to gain marginal cost so we should increase in additional unit/variables to get marginal cost with the increase in mc then we easily get average cost
Bilal
Answer the below question to best of your ability by employing the tax concept and supply and demand Suppose the supply of tobacco is elastic and the demand for tobacco is inelastic. If an excise tax is levied on the suppliers of tobacco, will the incidence fall mostly on consumers or mostly on pro
Carolyn Reply
first you suppose the demand for tobacco is elastic that means if price change more change would occur in demand and second you suppose tax has been lived on suppliers that means the price of tobacco will rise up and it's demand will decline that means consumer will start consuming less
Wani
what is perfect competition
Masciline Reply
perfect competition is the form of market where sellers are selling homogeneous product to buyers homogeneous product means a product which is same colour ,same brand and same cost has been used .
Wani
WHAT IS OPPORTUNITY COST AND GIVE EXAMPLES
Werku Reply
What Is opportunity cost and give examples fot it?
Werku
Opportunity cost means profit of what you have give up in order to choose something else
Wani
example of opportunity cost . we take example of land.As land have alternative uses it can be use for production , for building factories on it or for construction of house . suppose you are the owner of land and you build house on it that means you give up the benefit which you may get in produ
Wani
the benefit which you didn't get in production or in building factories is called opportunity cost
Wani
opportunity cost is the cost of what you give up to get something. example: if u wanna buy an apple and a mango and end up buying only a mango. your opportunity cost is the cost of the Apple the you've given up
ebrima
define marginal rate of substitution
Roshan Reply
marginal rate of substitution
Lengha
The rate at which one product can be substituted for another is called MRS.
Ramachandra
how much additional units of a product under consideration is required to deliver the same level of satisfaction that one derives from an additional unit of a given product.
Simply untill the satisfaction one icreased another decreased also depends upon the satisfaction power of a commodity
Bilal
Why indifference curve does not intersect x axis and y axis
Bilal
If the two products are perfect substitutes it will touch both axis. In your question, it is assumed that these are not perfect substitutes. If it touches any axis, it shows that with the given quantity of one product alone gives the same level of satisfaction.
Ramachandra
the intersection at the axis would mean that the product is perfectly substitutable and hence the indifference analysis is non-existent.
what industry monopolies belongs
Gwayi Reply

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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