Chapter 21, Problem 1E

To determine

(a)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

Before saving any job in the industry it must be created first. Importing restrictions may save domestic jobs but at the same time the cost which is to be incurred to the consumers may be greater than the benefits for those who retain their jobs.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.

To determine

(b)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

In this policy, people used to believe that the domestic government should take necessary steps to offset the advantage of foreign firms because foreign workers are always willing to work on a very low level of wages. Imposing restrictions will also eliminate the comparative advantage of foreign firms. By doing these, domestic consumers will worse off and undermine the basis of economy efficiency.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.

To determine

(c)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

Government revenue is being generated by tariff on trade. There are industrial countries for which income taxes are easy to collect and it rarely justifies tariffs based on the revenue generated for government spending. But there are many developing countries which find income taxes very difficult to levy and to collect tariffs is very easy for them. In developing countries, Observation of trade flows makes tariffs a very popular tax, and for which their revenue requirements may provide a valid justification for their existence.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.

To determine

(d)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

The industries which are very critical to the national defense should be protected from foreign competitions so that their existence is ensured. Likewise, proper care must be taken to highly ensure that the national defense arguments are not to be used to protect the countries other than those who are very crucial to national defense. The protection from foreign competition is very necessary so that the key defense related industries should continue to produce. For example, the shipbuilding industry is necessary in war since foreign made ships are not to be used at that time.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.

To determine

(e)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

Protecting infant industries is necessary for countries so that when the time is needed to be competitive, they can stand against the rest of the world. Nations are often inclined to protect new industries so that these new industries need adequate time to develop and to establish themselves to be more efficient enough. With the help of this, their costs are even no longer higher than those of foreign rivals. The main motive of such protection is to subsidize the costs. When the infant industry gets maturity and achieves enough size, such protection is withdrawn, and the industry is ready to compete with foreign competitors.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.

To determine

(f)

To explain:

The possible benefits and costs of a commercial policy designed to follow the given goal.

Explanation of Solution

An industry in which the cost of producing a unit of output fall due to increase in output is produced is an increasing return to scale. Strategic trade policy is intended to provide domestic increasing return to scale with an advantage over there foreign competitors. Opportunity cost falls in some industries with the increased level of output, such an increasing return to scale will require concentrating on production.

Economics Concept Introduction

Comparative Advantage:

Comparative advantage refers to the benefits of producing goods and services at lower opportunity cost than the other country.