Discuss the idea of tariffs and free trade as public or private goods. Discuss the consequences of these various policy implementations.

Question

What will be an ideal response?

Answer 1

Ans: Tariffs are a private good for the protected industry. There is an exclusive access point for a tariff protected industry to a given market base. The monopoly on access to the market prevents competition from accessing the same market. For those companies that do not have access to the market base, they have been denied the ability to do business and are, therefore, excluded from having privileged access. The consequences of tariff based market protection are that a specific producer is a benefactor and receives a government-enforced monopoly. Consumers likely are directed to spend more money on what could be an inferior product. This process could create domestic economic stagnation because the extra money that could be saved in a free market system is not spent. In other words, a given market is used to subsidize a business. If the protected industry provides a specialized form of a product not available elsewhere, tariff protections could sustain the industry. There is no reason to assume that “cheaper” is necessarily better quality. A free trade zone is considered to be a public good. This is because non-domestic competitors have access to a cross-border market base. There is no consumer guidance toward a particular producer so the market is free to attract customers based on other factors such as price or product quality. The consequences of free trade/tariff free production are that prices should be cheaper. Still, there could also be a loss of quality. Specialized (regional) knowledge of production could be lost if it cannot compete with a mass produced alternative.