Question

use two explanations for each objective when discusisng how a country decides which product to produce and export. use two explanation to explain and discuss the impact of tariffs. (mcconell brue fynn mircroeconomic book)

Answer 1

Ans.)

Comparative advantage:
A Country generally produces the goods which it can produce efficiently. In other words, it produces records in which least amount of resources are used and the productivity is high. For example if China is efficient in making gadgets, then it would produce mostly the gadgets and export these goods to the other countries and import the good which it cannot produce efficiently. So, the comparative advantage is the basis of bilateral trade between any two countries.

Resource abundance
The other basis that defines the type of product that a country produces and exports to other countries is the abundance of the input in a country.
In other words, it means that if a country has abundant labour then it generally produces the goods which requires more labour or if a country is abundant in the capital, then it generally produces the goods that require more capital. For example, the United States is a country which is abundant in the capital and it generally produces the goods such as cars which generally requires more use of capital. So, the other factor that decides the production pattern of a country is the abundance of the resource type.

Tax is imposed on per unit in import of a good in a country. It is proposed by the government of a country in order to protect the interest of the small domestic producers who are threatened by the international competition.
In the diagram below we can see that as the tariff is imposed, the world price in a country increases by the amount of tariff leading to the higher leading that the buyers are supposed to pay.

Area A + C + D + E is the decline in the consumer surplus. Out of the total production in the surplus the area – A refers to the increase in the producer surplus. As the price levels have increased so produces have incentives to produce more and earn profit and thus their surplus increases.
Area D refers to the government revenue the tarrifs have been imposed
Area C plus E is the deadweight loss which generally means decline in the net welfare in the economy with the imposition of tariffs.