Use the following information to work.Suppose that in...

Name: Problem 22, Chapter 7: Economics
Uploaded: 2020-10-01T06:05:21-08:00
Duration: 1 min 50 s
Channel: Kanishk Mishra
Description: Use the following information to work.Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China. Explain how the tariff on textiles will change the price that U.S. buyers pay for textiles, the quantity of textiles imported, and the quantity of textiles produced in the United States.

Use the following information to work.Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China. Explain how the tariff on textiles will change the price that U.S. buyers pay for textiles, the quantity of textiles imported, and the quantity of textiles produced in the United States.

Use the following information to work.Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China.
Explain how the tariff on textiles will change the price that U.S. buyers pay for textiles, the quantity of textiles imported, and the quantity of textiles produced in the United States.

Key Concepts

Quantity of Imports

When a tariff is imposed, the increased cost of foreign textiles typically reduces their demand in the domestic market. Consequently, the quantity of imports tends to decline, as buyers substitute more expensive imported textiles with either domestic products or other less heavily taxed alternatives.

Domestic Production

As imported textiles become more expensive due to the tariff, U.S. textile producers may see an opportunity to increase their market share. This phenomenon, known as import substitution, usually leads to a rise in domestic production, as consumers shift their purchasing preference toward locally made textiles to avoid higher prices on imports.

Tariff

A tariff is a tax placed on imported goods, making them more expensive relative to domestic products. This tool of trade policy is often used by governments to protect local industries from foreign competition, though it typically leads to higher prices for consumers and can reduce the overall volume of trade.

Price Incidence

Price incidence refers to the distribution of the tariff burden between buyers and sellers. In many cases, even though the tariff is levied on imports, U.S. buyers may end up paying more for textiles. This occurs because producers may raise prices in response to the reduced competition or increased costs, thereby shifting part or all of the tariff's burden onto consumers.

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