Presentation Questions

Economics                                                                March 18, 2013

1.       What are the effects of different instruments on trade policies?
Tariffs can be viewed as an added cost of transportation, making sellers unwilling to sell goods. A tariff will make the price of the good rise in the domestic market and will make it fall in the foreign market. Home producers supply more, while consumers demand less. The government gains tariff revenue from a tariff.

Export subsidy produces a negative effect on national welfare. It distorts production and consumption decisions. Producers produce too much and consumers consume too little compared to the market outcome. The terms of trade decreases because the price of exports falls in foreign markets.

An import quota is a restriction on the quantity of good that may be imported. A binding import quota will push up the price of the import because the quantity demanded ill exceeds the quantity supplied by domestic producers and from imports. The government receives no revenue. The extra revenues are called quota rents.
Voluntary export restraint works like an import quota, but the quota is imposed by the exporting government. The profits are earned by foreign governments and producers. Foreigners sell restricted quantities at an increased price.

2.       Which trade policy would I support and why?

The trade policy that I would support is the tariff trade policy, because tariffs help the home government and the home private sector with making money out of imports. Foreign governments have a harder time exporting, foreign completion is lowered, and thus the home country benefits even more.

Case Study Questions

Questions:

• What good did Mr. Sanchez specialize in?
  He specialized in making personalized computer identification tags.
  
  
• What were his reasons?
  His reasons were that he had experience in that sort of product, and had many friends in the United States and overseas who might be interested in the product.
  
  
• What are some examples of specialization in the global context? Are there particular regions or countries that have historically specialized in a product or group of products?
  Some examples of specialization in a global context is how Argentina tends to provide the rest of the international community with large amounts of lumber because of the vast amounts of natural forest which grow in the region which are perfect wood that are in need by other countries that do not have such large amounts of natural forest to use. There are particular regions or countries that have historically specialized in a product or group of products.
  
  
• What are the reasons for that historic specialization? Are there regions or countries that have only recently begun to specialize in a product or group of products?
  Reasons for the historic specialization could be just a general need for the product or group of products at the time, which may still be needed today as a necessity. Some regions or countries that have only begun to specialize in a product or group of products are many European countries which have recently been providing greener sources of energy to other countries around the world.
  
  
• What changes in technology, trade, or other areas do you think lead to this specialization?
  Advancements in technological capabilities increase in trade along with better relations with foreign governments and businesses, and in increase in general understanding of a product can lead to the formation of specialization in a country or region on a product or group of products.
  
  
• What types of decisions did Mr. Sanchez make? What types of actions did the government take?
  He began to export his devices to India and Japan. He had to lower his prices to compete more effectively. The government forced importers to pay a small tax on each of the items imported. They later on eliminated the tariff because of complaints by the importers. Sanchez moved the factory to Mexico, paid skilled workers half of what he used to pay, and began to make less expensive, lower quality products in order to be able to keep his business running.
  
  
• How did those decisions or actions affect the success or failure of the business?
  The decisions affected the success of the business because, had Sanchez not made those decisions in the first place, his business would have closed down, he would have lost the job that he loved, and all the deals that he had with foreign governments would have broken down. The fact that he has managed to keep his business running and still be able to make a small profit means that, in reality, the decisions have led to the success of the business.
  
  
• What factors might have led Mr. Sanchez to make a decision other than the one he chose?
  Some factors could have been that the government might have brought back up the tariffs put upon the goods of importers to the country, as well as managing to slightly lower the pay of the newer workers at his factory in order to be able to still make a small profit.
  
  
• How would access to information affect the decisions made by Mr. Sanchez?
  Access to information could have led him to have made perhaps a better decision during the beginning part of his business, as well as at the later on stages of the business.

• To what countries did Mr. Sanchez export his devices?
  He exported his devices to Japan and India, countries that have been known to specialize highly in technological products, especially computers, which was what Sanchez’s product was based upon.

• What are the advantages and disadvantages of relying heavily on exports?
  Advantages are that exports could potentially make the owner quite the amount of money if he manages to get the right market and put out the right product. Disadvantages are that markets are always changing, and that at any moment tariffs could rise and different other factors might arise that could make exporting a costly business that could turn out very little profit.
  
  
• How might a strong export-oriented economy affect employment?
  It might increase employment because all of the goods are made in the country, which means that workers are needed, so the employment will rise.
  
  
• Can you think of an example in which a country relies almost completely on export of one good?
  A country that relies almost completely on export on one good could be Japan, with their exports on electronic devices to countries around the world.
  
  
• How has this affected the country?
  It has caused the country to prosper some, with advances in technology increasing in Japan as well as Japan itself gaining a reputation as being one of the technological capitals of the world.

• What products discussed in the case study were imported into the United States?
  The products were the same as those that Sanchez had made, but their quality was less than that of Sanchez and the service was also reduced. However, the prices were cheaper than those of Sanchez.
  
  
• How did this affect Mr. Sanchez?
  This affected Sanchez by causing him to decrease the prices on his devices, along with, near the end, causing him to move the factory to a place where he could lower the pay of the workers as well as having had to reduce his quality and service just so that he can manage to make a small profit and keep his business afloat.
  
  
• What imported products are available in your community?
  Some imported products that are available in my community are international food and beverage products that can’t be found or are really difficult to find in other places around the country.
  
  
• Is there any additional value associated with the importation of any of these products (i.e., French wine, Italian shoes, Japanese electronics)?
  There is additional value that is associated with the importation of these products, such as French wine that is found in the supermarkets and Italian recipes that are found and provided around the community.
  
  
• What effect on a country’s culture might result from widespread availability of imported goods and services?
  The effect on a country’s culture might be that it would change from the spread and availability of imported goods and services. Dependency on technology and many other services and goods would increase, and the original culture of a region might change and develop into a new one.

• What trade barrier, put in place by the government, initially helped Mr. Sanchez?
  The trade barrier that was put in place by the government that initially helped Sanchez was the tariffs that were imposed on importers to the country that imported the goods similar to those that Sanchez made.
  
  
• What happened when that barrier was removed?
  When the tariff was removed, more of the product that Sanchez made entered the country. He had more competition to deal with, which caused him to make changes to both his business and his product.
  
  
• What are some products that have barriers or tariffs restricting their trade (imposed either by the US or its trading partners)?
  Some products that have barriers restricting their trade are smart phones that are imported from different countries to the United States, along with other electronic devices imported to the U.S.
  
  
• How might a barrier based on communication, trust, and reluctance to import US products (such as in Japan) differ from a formal trade barrier?
   A formal trade barrier is harder to break because a formal trade barrier is implemented by the government, thus it is hard to change. A barrier based in communication, trust, and reluctance can be worked upon, and eventually, the barrier can be broken and partnerships can be formed in order to create more successful business trade.
  
  
• With this example, why might a removal of a formal trade barrier have little or no effect?
  It might have little or no effect because if there is nobody that is willing to trade with the United States in the first place, then the formal trade barriers would have had no effect. Either way, communication, trust, and a good partnership is needed for any trading to take place, no matter what kind and no matter what country is trading with what other country.
  
  
• What are the dangers of removing a trade barrier?
  Foreign exporters might put too much pressure on local businesses, causing them to close down because they can’t compete with the foreign businesses. This might cause large amounts of unemployment and an economy that heavily relies upon the foreign businesses, which in turn is an extremely vulnerable economy.
  
  
• What were the goals of Mr. Sanchez in opening his factory?
  The goals of Sanchez were to be able to sell his product in the United States and, eventually, India and Japan while maintaining high quality and good service. He wanted to be able to make a good profit on the business as well from selling his products.
  
  
• What were the goals of U.S. government policy when Mr. Sanchez opened his factory? How did these goals change over time? Why do you think they changed?
  The goals of the United States government policy when Sanchez opened his factory was to reward him for his hard work and to keep foreign exporters that did Sanchez’s products at bay by inducing tariffs on them. The goals changed over time because eventually the government removed the tariffs that were implemented on the foreign exporters. The changed because the government needed to get the products to the American population and the foreign exporters were complaining that the tariffs were impeding their ability to make a good profit on the product.

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