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Chapter 20: Q13. (page 431)

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

  1. Tariff

  2. Quota

Short Answer

Expert verified

The correct option is: b) Quota

Step by step solution

01

Step 1. Explanation

A tariff is a tax on imported products, whereas a quota restricts the number of quantities imported. The imposition of tariff increases the government revenue and safeguard the domestic producer; the government may use the tariff revenue for the well-being of the society. The imposition of quota increases the product's price but does not add any revenue to the domestic government. Hence, it is preferred by the exporting producer as it increases their revenue. Thus, China will prefer the policy of quota.

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Most popular questions from this chapter

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula ≡ 2 cans tuna fish

Tunata: 1 can baby formula ≡ 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1/2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries?

In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn’t all manufacturing done in Mexico and other low-wage countries?

Suppose that the current international price of wheat is \(6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than \)6?

  1. Higher.

  2. Lower.

  3. It will stay the same.

Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quota for the world economy?
See all solutions

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