How can tariffs lead to a situation in which all parties to a trade lose?
What will be an ideal response?
In effect, a tariff amounts to government intervention to rig prices in favor of domestic producers. This technique works only as long as foreigners accept the tariff exploitation passively, which they rarely do. More often, they retaliate by imposing tariffs or quotas of their own on imports from the country that began the tariff game. Such tit-for-tat behavior can easily lead to a trade war in which everyone loses through the resulting reductions in trade. Something like this, in fact, happened to the world economy in the 1930s, and it helped prolong the worldwide depression. Preventing such trade wars is one main reason why nations that belong to the World Trade Organization pledge not to raise tariffs.
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The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The deadweight loss when the market has a monopoly producer is
A) ace. B) abf. C) bcd. D) bcef. E) acd.
A firm that shuts down in the short run experiences losses equal to
A) zero. B) total variable costs. C) total fixed costs. D) total marginal costs.
The demand for a movie ticket is probably ________ than is the demand for a Broadway show ticket because ________.
A. less price elastic; a movie ticket has fewer available substitutes. B. more price elastic; a movie ticket requires a smaller portion of one's income. C. more price elastic; a movie ticket has fewer available substitutes. D. less price elastic; a movie ticket requires a smaller portion of one's income.
The Board of Governors of the Federal Reserve System can increase commercial bank reserves by:
a. Increasing the reserve ratio b. Decreasing the prime interest rate c. Increasing the discount rate d. Buying government securities in the open market