Question

Of these three choices-tariffs, quotas, and free trade-economists like the most and the least. a) tariffs, quotas d) free trade, quotas b) tariffs, free trade e) quotas, free trade c) free trade, tariffs f) quotas, tariffs

Short answer

c) free trade, tariffs

Step-by-step solution

Understand the Concepts

Before choosing the answer, let's briefly go over the concepts involved: 1. Tariffs: These are taxes imposed on imported goods, which increase their price and make them less competitive compared to domestically-produced goods. This can lead to reduced demand for imported goods, protection of domestic industries, and increased government revenue. 2. Quotas: These are restrictions on the quantity of certain goods that can be imported into a country. Quotas are meant to protect domestic industries by reducing the competition they face from imported goods. 3. Free trade: Free trade is a policy that eliminates tariffs, quotas, and other barriers to trade between countries, allowing goods and services to move freely across borders. Economists often argue that free trade leads to increased efficiency, economic growth, and benefits for consumers through lower prices and increased choices.

Evaluate the Choices

Now let's examine the given choices and determine the most and the least favored concepts among economists: a) tariffs, quotas d) free trade, quotas b) tariffs, free trade e) quotas, free trade c) free trade, tariffs f) quotas, tariffs

Identify the Most Preferred Concept

Economists typically prefer free trade because it allows for the most efficient allocation of resources and promotes economic growth. Therefore, we should look for the choice where "free trade" is listed as the most preferred concept. In this case, choice "c" has free trade as the most preferred option.

Identify the Least Preferred Concept

Now, we need to determine which concept economists like the least. Between tariffs and quotas, economists generally dislike quotas more as they create stronger distortions in the market and limit consumer choices. Thus, combining these preferences, the answer should be the choice where the least preferred option is quotas. Referring back to the choices, we can see that choice "c" (free trade, tariffs) represents the most and the least preferred concepts among economists. Final Answer: c) free trade, tariffs

Key concepts

Tariffs

Tariffs are taxes or duties imposed by a government on imported goods. They are utilized as a tool to protect domestic industries from foreign competition by making imported products more expensive. With higher prices on imported goods, domestic products become comparatively cheaper, encouraging consumers to buy locally.

However, tariffs do more than just protect local jobs and industries. They can also be used to generate revenue for the government. This additional income can support national projects or help pay off debts. But it's crucial to understand that tariffs can have downsides as well.

• They may provoke retaliatory actions from other countries, leading to a trade war.
• Consumers might face higher prices, reducing their purchasing power.
• Diversifying the economy can be hindered as domestic industries become reliant on protective measures.

Quotas

Quotas set a limit on the amount or value of a specific good that can be imported into a country. Unlike tariffs, which make imported goods more expensive, quotas directly restrict the quantity. By limiting imports, quotas aim to shield domestic industries from overwhelming foreign competition.

While quotas can effectively protect local industries and safeguard jobs, they also bring certain disadvantages. Such restrictions can lead to shortages of goods, prompting price increases. This can negatively impact consumers who may have fewer choices and higher costs. Furthermore, quotas carry the risk of creating diplomatic tensions between trading partners.

• Quotas can disrupt international supply chains, affecting the availability of goods.
• The policy can lead to inefficiencies as domestic industries may not feel compelled to improve.
• They offer no revenue benefits, unlike tariffs, and can sometimes be complex to administer.

Free Trade

Free trade is a policy that allows goods and services to move across international borders without government-imposed restrictions like tariffs and quotas. This approach promotes global trade by facilitating a seamless exchange of resources between countries. Economists generally favor free trade for numerous compelling reasons.

Firstly, free trade fosters economic efficiency by allowing countries to specialize in producing goods where they have a competitive advantage. This specialization enhances productivity, boosts economic growth, and ultimately leads to a higher standard of living. Another critical benefit is that free trade expands consumer choice and lowers prices, as markets are driven by competition without import barriers.

• It promotes international cooperation and relationships.
• Consumers benefit from a variety of goods at competitive prices.
• Markets operate more efficiently, distributing resources effectively.

Despite these advantages, it's essential to recognize that free trade can have critics. Some argue it may lead to job losses in industries which are not competitive globally, and that economic gains might mainly benefit larger corporations rather than workers.