Microeconomics

Considerthe diagram Autos may be imported for $20,000 each. Now assume thata tariff of $10,000 per auto is put in place.

Calculatethe loss in consumer surplus.

0.5(highestprice –pt)×qt=0.5 (70-30)×4=80

0.5(highestprice-pw)×qw=0.5(70-20)×5=125

Answer=125-80=45loss in consumer surplus

Calculatethe gain in producer surplus.

0.5(Highestprice-pt)×qt=0.5(70-30)×2=80

0.5(highestprice-pw)×qw=0.5(70-20)×1=50

80-50=30producer surplus

Calculatethe tariff revenue.

(pt-pw)×Newimport=(30-20)×2=20

Calculatethe dollar value of the deadweight loss due to this tariff.

DWL=0.5×tarriff×changein import=0.5×10×1=5

Inwords, explain why the areas marked C represent pure losses.

Sincethe area marked, C represent loss by the government thus cannot begain by anybody.

Argumentsabout Protection

Theargument by my nephew that he cannot buy shoes from China and Vietnamis vague. It does more hurt to our nation than good derived frominternational to personal benefits of trade. China and Vietnam have acomparative advantage in producing these sneakers. The low wagesmeans low production cost hence low prices. Adoption of these shoescan make our nation focus its resource in other productive areasthough that will also hurt our economy due to job lose as the resultof home industry closure.

AbrahamLincoln is trying to show that he better enhance the economy of hiscountry than allow purchasing of the foreigners court. He does nottake into consideration factors like cost of production, quality,consumer choices and freedom and existence of free global economy. Heencourages the growth of home industries at the expense of theconsumer.

TheFordney-McCumber Tariff theory is flawed as it does not encouragecompetition and innovation in the domestic markets. Also increase intariff can result in loss of revenue from the tariffs.

Bilateralinvestment agreement refers to a covenant made between two or morenations setting rules of investment for each country. BilateralInvestment Agreement enables our country to be able to invest inanother country without having to incur extra cost and as an equal ofChinese organizations. It reduces legal hurdles encountered whenestablishing a company in a foreign land. The Bilateral Investmentencourages industry expansion and diversification of the company. Theprofit that will be earned in China can be brought back to the MotherCompany. Also, the bilateral trade enables continuation and riskdiversification as resources are distributed over a geographicalarea. China can also invest creating jobs in the USA as they needpersonnel to run the organization. Bilateral trade is used tostrengthen political ties hence stable economic conditions. I supportBilateral Investment Treaty as it strengthens political ties andeconomic conditions when run for the purpose that they were made for.

Bastiatis criticizing the economic legislator in a sarcastic way he argueshow they are protecting home industries from the foreign industries.He uses the sun to show to what extent even if people get the sunfree, people are forced to buy light utilities. He attests to thefact that the sale of home products would result in wealth but at theexpense of the consumer as the legislators have no regard forconsumers. He uses oranges heated by the sun and another byartificial light and their difference in prices. He argues what goodit is to buy an expensive thing when there is already a cheaper one.

Isupport his statement as it is compelling, because the common personis the one who suffers the consequences of those protection barriersas a result of the legislator. It is not logic to strain the peoplewhen the same product can be found at a lower price than the oneoffered by home markets.

References

Mankiw,N. (2014). Principlesof .New York: Cengage Learning