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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Why might a tax on domestic consumption of resources critical for national security be a more efficient approach than barriers to imports?

To determine

The reasons for which the tax on domestic consumption of resources is considered better approach than barriers to imports.

Explanation

Protectionism refers to the policy of the government of a country restricting free trade for various purposes. Protectionism is practiced for protecting domestic producers and workers from foreign competition. It is generally followed by developing countries to shield small producers.Forms of protectionism are import quotas, import tariffs, export subsidies, etc.

Import quota is a quantitative barrier to trade through which government restricts the quantity of import of a certain commodity to protect domestic producers from foreign competition. In this case, government puts a direct restriction on the quantity of a good that can be imported.

Tariff is a quantitative barrier to trade. In case of a tariff, the government imposes a cost on import of foreign goods that increases the import prices for those goods, thus discouraging imports.

Tariffs and quotas are applied on imports of goods to protect domestic producers from foreign competition...

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