Question

If it would be cheaper to give each steelworker $375,000 per year in cash rather than impose restrictions on steel imports, why do we have the import restrictions rather than the cash payments? Who gains and who loses from import restrictions? In answering, you should consider both consumers and producers in both the country that imposes the restrictions and the other countries affected by them

Answer 1

It is cheaper to give each steelworkers $ 375,000 per year in cash rather than imposing restriction on steel imports but still government imposes restrictions on import. Following are reasons:

• Imposition of restrictions on import guards domestic infant industries against the foreign competition. Thus, in long run, such infant industries are able to survive and provide more employments.
• Excessive import if not adequately financed by the export leads to the fall in value of domestic currency. Thus, it affects fundamental of economy negatively.

Domestic producers are predominantly benefitted by the rise in the import restrictions while consumers suffer by way of reduced outputs and higher prices. Deadweightloss is higher for consumers if import restrictions are effected by authority.