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These three insights seldom lead to simple or obvious political conclusions. As the famous British economist Joan Robinson wrote some decades ago: “[E]conomic theory, in itself, preaches no doctrines and cannot establish any universally valid laws. It is a method of ordering ideas and formulating questions.” The study of economics is neither politically conservative, nor moderate, nor liberal. There are economists who are Democrats, Republicans, libertarians, socialists, and members of every other political group you can name. Of course, conservatives may tend to emphasize the virtues of markets and the limitations of government, while liberals may tend to emphasize the shortcomings of markets and the need for government programs. Such differences only illustrate that the language and terminology of economics is not limited to one set of political beliefs, but can be used by all.

Chinese tire tariffs

In April 2009, the union representing U.S. tire manufacturing workers filed a request with the U.S. International Trade Commission (ITC) , asking it to investigate tire imports from China. Under U.S. trade law, if imports from a country increase to the point that they cause market disruption in the United States, as determined by the ITC, then it can also recommend a remedy for this market disruption. In this case, the ITC determined that from 2004 to 2008, U.S. tire manufacturers suffered declines in production, financial health, and employment as a direct result of increases in tire imports from China. The ITC recommended that an additional tax be placed on tire imports from China. President Obama and Congress agreed with the ITC recommendation, and in June 2009 tariffs on Chinese tires increased from 4% to 39%.

Why would U.S. consumers buy imported tires from China in the first place? Most likely, because they are cheaper than tires produced domestically or in other countries. Therefore, this tariff increase should cause U.S. consumers to pay higher prices for tires, either because Chinese tires are now more expensive, or because U.S. consumers are pushed by the tariff to buy more expensive tires made by U.S. manufacturers or those from other countries. In the end, this tariff made U.S. consumers pay more for tires.

Was this tariff met with outrage expressed via social media, traditional media, or mass protests? Were there “Occupy Wall Street-type” demonstrations? The answer is a resounding “No.” Most U.S. tire consumers were likely unaware of the tariff increase, although they may have noticed the price increase, which was between $4 and $13 depending on the type of tire. Tire consumers are also potential voters. Conceivably, a tax increase, even a small one, might make voters unhappy. However, voters probably realized that it was not worth their time to learn anything about this issue or cast a vote based on it. They probably thought their vote would not matter in determining the outcome of an election or changing this policy.

Estimates of the impact of this tariff show it costs U.S. consumers around $1.11 billion annually. Of this amount, roughly $817 million ends up in the pockets of foreign tire manufacturers other than in China, and the remaining $294 million goes to U.S. tire manufacturers. In other words, the tariff increase on Chinese tires may have saved 1,200 jobs in the domestic tire sector, but it cost 3,700 jobs in other sectors, as consumers had to cut down on their spending because they were paying more for tires. Jobs were actually lost as a result of this tariff. Workers in U.S. tire manufacturing firms earned about $40,000 in 2010. Given the number of jobs saved and the total cost to U.S. consumers, the cost of saving one job amounted to $926,500!

This tariff caused a net decline in U.S. social surplus. (Total surplus is discussed in the Demand and Supply chapter, and tariffs are discussed in the The International Trade and Capital Flows chapter.) Instead of saving jobs, it cost jobs, and those jobs that it saved cost many times more than the people working in them could ever hope to earn. Why would the government do this?

The chapter answers this question by discussing the influence special interest groups have on economic policy. The steelworkers union, whose members make tires, saw more and more of its members lose their jobs as U.S. consumers consumed more and more cheap Chinese tires. By definition, this union is relatively small but well organized, especially compared to tire consumers. It stands to gain much for each of its members, compared to what each tire consumer may have to give up in terms of higher prices. So the steelworkers union (joined by domestic tire manufacturers) has not only the means but the incentive to lobby economic policymakers and lawmakers. Given that U.S. tire consumers are a large and unorganized group, if they even are a group, it is unlikely they will lobby against higher tire tariffs. In the end, lawmakers tend to listen to those who lobby them, even though the results make for bad economic policy.

Key concepts and summary

Majority votes can run into difficulties when more than two choices exist. A voting cycle occurs when, in a situation with at least three choices, choice A is preferred by a majority vote to choice B, choice B is preferred by a majority vote to choice C, and choice C is preferred by a majority vote to choice A. In such a situation, it is impossible to identify what the majority prefers. Another difficulty arises when the vote is so divided that no choice receives a majority.

A practical approach to microeconomic policy will need to take a realistic view of the specific strengths and weaknesses of markets and the specific strengths and weaknesses of government, rather than making the easy but wrong assumption that either the market or government is always beneficial or always harmful.


Nixon, Ron. “American Candy Makers. Pinched by Inflated Sugar Prices. Look Abroad.” The New York Times . Last modified October 30, 2013. http://www.nytimes.com/2013/10/31/us/american-candy-makers-pinched-by-inflated-sugar-prices-look-abroad.html?_r=0.

Hufbauer, Gary Clyde, and Sean Lowry. “U.S. Tire Tariffs: Saving Few Jobs at High Cost (Policy Brief 12-9).” Peterson Institute for International Economics . Last modified April 2012.

Questions & Answers

causes of high elasticity of demand
Onyango Reply
causes of high elasticity of supply
I think there' s a mistake. P = - 0.4 + 0.2Qs is the supply curve and not the demand curve. Am I correct?
Valeria Reply
Qs is quantity supplied
This is what I think
this eaquation is supply curve Qs=P-0.4 the relationship is positive when the price increase the Qs increase....
since Qs is quantity supplied P= -0.4 + 0.2Qs =>P +0.4=0.2Qs =>P/0.2 + 0.4=Qs I made Qs the subject of the formula or equation. So your answer is correct
P = -0.4 + 0.2Qs is the same as P/0.2+0.4=Qs Price has a direct relationship with the quantity supplied i.e the higher the price the higher the quantity supplied. that is why it is +0.4(this is the quantity and it is postive) and P/O.2(is the price and it is positive).
For the demand equation let me give an example 0.2P-0.4=Qd. Here the P is postive(+0.2) and the quantity which is -O.4 is negative( because of the negative sign(-) there is an inverse relationship between price and quantity. For quantity demanded the higher the price the lower the quantuty.
It's how I understand it
0.2P-0.4=Qd. the equation is wrong because the price have direct ralationship Quantity demanded but the correct equation is-0.2P -0.4=Qd so the higher price the lower Quantity
I think the relationship is inverse because of the negative sign(-)
ok You mean the price and quantity demanded should be negative(inverse relationship) for Qd and the price and quantity supplied should be postive(direct relationship) for Qs
thank you for the correction
yes because it got a positive gradient of +0.2
This is the mistake I found: "Since P is on the vertical axis, it is easiest if you solve each equation for P. The demand curve is then P = 8 – 0.5Qd and the demand curve is P = –0.4 + 0.2Qs. Note that the vertical intercepts are 8 and –0.4, and the slopes are –0.5 for demand and 0.2 for supply."
dear price do not depend on quantity. rather quantity depends on price. so the equation should be Qty=0.2Px-0.4
please can someone generate supply equation for me
David Reply
where p is price, Pr is price of related goods, G is goals of a firm E is supplier's future expectation of prices,Z is other related factors, Pf is cost of factors of production.
I think it's wrong
if Qd=90-p Qs=90+p
the coefficient of price must be positive since supply curve is positively slopping
it's true. thank you
diagram of perfectly inelastic
Muhd Reply
chi-square test is used to test A. Analysis of variance B. Association between the qualitative variables C. Difference between means of two distribution drawn from the same population D. Difference between the means of two distribution drawn from different population
Syk Reply
the Answer Should Be D
The answers is D
Thank you
What is economic?
is the system that study the difference between resources and the growth population
Economics studies humanbehaviour as a relation between ends and scarce means which have alternative uses
rigth .....but economic has different concepts
what is equilibrium
Obed Reply
it is that point where price is equal to output or rather a point where demand is equal to supply
it is a point where consumer get maximum satisfaction and producers maximise profit or minimise loss
supply equal demand in one point
it's a point where supply and demand meets/equal whether profit or loss
how to compute budget constraint
Kristine Reply
how to calculate balance of payment deficit
How to calculate National income
what,how and for whom to produce
kunle Reply
those are problem that producer face in the process of production due to scarcity
a particular selected product is produced in a systematic hygiene condition and is produced for the customers.
what are the factors of economic growth?
Povuuro Reply
tax, imports and exports, etc
welcome on board
Explain the paradox of poverty in the midst of plenty?
moses Reply
total production diagram explain
Udayan Reply
what is the formula of price elasticity demand
Sherry Reply
%change in Quantity demand/%change in price
%change QD / %change P
How can hight interest rate affect the level of GDP?
Yori Reply
simple because of high interest it become revenue for our nation and it self it also rise our national income or GDP
how does the government regulate markets and improve market outcomes
Ranveer Reply
The government tries to combatmarket inequities through regulation, taxation, and subsidies. ... Examples of this include breaking up monopolies and regulating negative externalities like pollution. 
Governments may sometimes intervene in markets to promote other goals, such as national unity and advancement.
by applying and regulating fiscal and montary policy the concerned govt can improve almost all markets
it does not improve
Give the differences between labor&financial markets
Andrew Reply
this is the differences

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