Principles of Microeconomics
Solutions
Principles of Microeconomics
The textile industry of Autarka advocates a ban on the import of wool suits. Describe five arguments its lobbyists might make. Give a response to each of these arguments.
The international trade is the exchange of goods and services between different nations in the world. The exchange will take place and the main two processes are the export and imports. The exports is the sale of domestic goods to the foreigners and imports is the vice versa. The consumer surplus can be explained as the difference between the highest price that the consumer is willing to pay and the actual price that the consumer pays. The difference between these two prices is known as the surplus to the consumer. The producer surplus is the difference between the minimum willing to accept price by the seller and actual price that the seller receives for the commodity.
When the price of wool is 3 ounce of gold in the domestic country and only 2 ounce in the neighboring country, the wool is cheaper in the foreign country than the domestic country. In such a situation, the allowing of the international trade will lead to the import of wool by the domestic country. This will lead to some arguments against and some arguments in favor of the international trade and the import of the wool. They can be pointed out as follows:
The lobbyists will come up with some arguments against the import of the wool and they will be as follows:
(1) The importing of wool from the foreign countries at lower rate will destroy the employment sector of the domestic market which is associated with the wool. As a result of the lower priced foreign wool, the employment in the domestic wool sector will fall due to the higher cost and it is harmful to the domestic economy.
(2) The imports will destroy the vital industry and since the wool based industries are vital for the domestic economy and for its growth, importing will destroy them.
(3) The wool suits industries in the domestic market are starting to grow and they need protection in order to become strong and compete against the strong international competitors...
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