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Who benefits and who pays?

Using the demand and supply model, consider the impact of protectionism on producers and consumers in each of the two countries. For protected producers like U.S. sugar farmers, restricting imports is clearly positive. Without a need to face imported products, these producers are able to sell more, at a higher price. For consumers in the country with the protected good, in this case U.S. sugar consumers, restricting imports is clearly negative. They end up buying a lower quantity of the good and paying a higher price for what they do buy, compared to the equilibrium price and quantity without trade. The following Clear It Up feature considers why a country might outsource jobs even for a domestic product.

Why are life savers, an american product, not made in america?

Life Savers, the hard candy with the hole in the middle, were invented in 1912 by Clarence Crane in Cleveland, Ohio. Starting in the late 1960s and for 35 years afterward, 46 billion Life Savers a year, in 200 million rolls, were produced by a plant in Holland, Michigan. But in 2002, the Kraft Company announced that the Michigan plant would be closed and Life Saver production moved across the border to Montreal, Canada.

One reason is that Canadian workers are paid slightly less, especially in healthcare and insurance costs that are not linked to employment there. Another main reason is that the United States government keeps the price of sugar high for the benefit of sugar farmers, with a combination of a government price floor program and strict quotas on imported sugar. According to the Coalition for Sugar Reform, from 2009 to 2012, the price of refined sugar in the United States ranged from 64% to 92% higher than the world price. Life Saver production uses over 100 tons of sugar each day, because the candies are 95% sugar.

A number of other candy companies have also reduced U.S. production and expanded foreign production. Indeed, from 1997 to 2011, some 127,000 jobs in the sugar-using industries, or more than seven times the total employment in sugar production, were eliminated. While the candy industry is especially affected by the cost of sugar, the costs are spread more broadly. U.S. consumers pay roughly $1 billion per year in higher food prices because of elevated sugar costs. Meanwhile, sugar producers in low-income countries are driven out of business. Because of the sugar subsidies to domestic producers and the quotas on imports, they cannot sell their output profitably, or at all, in the United States market.

The fact that protectionism pushes up prices for consumers in the country enacting such protectionism is not always acknowledged openly, but it is not disputed. After all, if protectionism did not benefit domestic producers, there would not be much point in enacting such policies in the first place. Protectionism is simply a method of requiring consumers to subsidize producers. The subsidy is indirect, since it is paid by consumers through higher prices, rather than a direct subsidy paid by the government with money collected from taxpayers. But protectionism works like a subsidy, nonetheless. The American satirist Ambrose Bierce defined “tariff” this way in his 1911 book, The Devil’s Dictionary : “Tariff, n. A scale of taxes on imports, designed to protect the domestic producer against the greed of his consumer.”

The effect of protectionism on producers and consumers in the foreign country is complex. When an import quota is used to impose partial protectionism, the sugar producers of Brazil receive a lower price for the sugar they sell in Brazil—but a higher price for the sugar they are allowed to export to the United States. Indeed, notice that some of the burden of protectionism, paid by domestic consumers, ends up in the hands of foreign producers in this case. Brazilian sugar consumers seem to benefit from U.S. protectionism, because it reduces the price of sugar that they pay. On the other hand, at least some of these Brazilian sugar consumers also work as sugar farmers, so their incomes and jobs are reduced by protectionism. Moreover, if trade between the countries vanishes, Brazilian consumers would miss out on better prices for imported goods—which do not appear in our single-market example of sugar protectionism.

The effects of protectionism on foreign countries notwithstanding, protectionism requires domestic consumers of a product (consumers may include either households or other firms) to pay higher prices to benefit domestic producers of that product. In addition, when a country enacts protectionism, it loses the economic gains it would have been able to achieve through a combination of comparative advantage, specialized learning, and economies of scale, concepts discussed in International Trade .

Key concepts and summary

There are three tools for restricting the flow of trade: tariffs, import quotas, and nontariff barriers. When a country places limitations on imports from abroad, regardless of whether it uses tariffs, quotas, or nontariff barriers, it is said to be practicing protectionism. Protectionism will raise the price of the protected good in the domestic market, which causes domestic consumers to pay more, but domestic producers to earn more.

Problems

Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras in Thailand and Japan is described by the following functions:

Qd T  =  60 – P
Qs T  =  –5 +  1 4 P
Qd J  =  80 – P
Qs J  =  –10 +  1 2 P

P is the price measured in a common currency used in both countries, such as the Thai Baht.

  1. Compute the equilibrium price (P) and quantities (Q) in each country without trade.
  2. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and imports cameras and in what quantities?
Got questions? Get instant answers now!

References

Bureau of Labor Statistics. “Industries at a Glance.” Accessed December 31, 2013. http://www.bls.gov/iag/.

Oxfam International. Accessed January 6, 2014. http://www.oxfam.org/.

Questions & Answers

distinguish between microeconomics and macroeconomics
Yash Reply
Microeconomics is just study about a small market or can say as single market. While Macroeconomics is study of the entire economy of country or the whole market. Example: Sales of Toyota Vios is consider as Microeconomics which is under the work of Microeconomist.
LOO
But if you wanna to know about the entire sales market of Toyota car series then it belongs to Macroeconomics and it will be the work of Macroeconomist
LOO
Micro studies the behavior of individuals and Firm in making decisions regarding the allocation of Scarce resources & the interactions among these individuals and firms. while macro is the study of the sum total of economic activity, dealing with the issues of growth & inflation & unemployment
sourabh
can anyone tell me what is deadweight loss.....
Pervaiz
Micro deals from individual point of view and their day to day economy problem whole macro deals with the economic problems of nations as a whole
Ankita
what is economy ?
Pandit Reply
what is market failure
Parey Reply
the market which does not fulfill the Peroto optimum criteria is called market failure. That means some is better without making no one can worse up.
dilleswar
what is peroto optimum
Pandit
Why globalisation an free trade is important
Fredrick Reply
First i vll tell u what is Globalisation Glosbalisation means to integrate your economy with the economy of the other countries Thus we can say there should b free trade b/w countries there shouldt not any restriction on trade so that when u go for trade then integrate yr economy with the rest of
Pervaiz
of world that described u ave globalised yr economy but it is possible only in free trade ....so that it is important
Pervaiz
monopoly or monopolistic is known as 'price maker'
Rossi Reply
same
Dina
what is elasticity
Helna Reply
measures responsiveness the quantity of demand for change in the price
Dina
a degree in which consumer's changes their demand or amount supplied in responce to changes in income or prices
Felix
is the concept which indicate the degree of responsiveness of quantity demanded to a small change in price of goods,income or price of another goods.
MUNIRUDEEN
what is a trade off
Charity
a balance achieved between two desirable but incompatible features; a compromise.
Wahaj
wow sorry question... fish not bull bear fish
muthatfucking
flexiblity in demand and price
Avinash
what is demand
Mouni Reply
what is dead weight loss
Sharee Reply
a reduction in consumers’ surplus caused by a fall in quantities of a product produced, especially when a monopoly producer keeps production low to maintain high prices
Wahaj
society welfare loss:the loss of total societal welfare(consumer & producer surplus) when a market is producing at a level of output which is not socially optimal...May arise from a market failure orfrom when there is intervention of government in efficient market
Pervaiz
what is the difference between capitalism and socialism
Helna Reply
captalism ,market dominated economy socialism,goverment domineted economy
Avinash
what is the difference between positive economics and normative economics
Ritesh Reply
positive economics is not the value judgement but normative economics is known as the value judgement.
dilleswar
positive economics only describes the economic phenomenon as it is. normative economics, beside describing phenomenon also suggest a solution to it
Ariel
is there only one difference between positive and normative economics
Ritesh
that's the most important difference.
Ariel
what is economics
Ritesh Reply
is the study of allocative scarce resources to meet human unlimited want
Helna
other definition of economics
Ritesh
economic is the knowledge which concerned with the wealth and consumption of goods and services
Iqbal
Study of all kinds of economic activities people involve in a particular society n time
ANIL
how can we define a demand
Mouni
A good or something we really want and need
Enrico
economics simple defination is =needs+wants>resources
Felix
demand is consumer willingness to pay a price for a specific good or services
Felix
Thnx
Enrico
It is the science of scarcity the want are unlimited and resources are limited which are in alternative uses
Zaid
Demand is the desire to own anything, the willingness to pay for it and the ability to buy it
Victoria
explain the relationship between individual supply and market supply
Helna
what is positive economics
Sarita Reply
The consumer and producer are getting equal satisfaction i.e called positive economics.
Abhimanyu
Positive economics seeks to describe and predict measurable, economic phenomena. Normative economics seeks to identify what economies ought to be like.
David
so what is life like
Raymone Reply
life is a long story about how you die
Binay
Life is all about impact, influence and contributions u make when living
zacheaus
It's about how you use yourself as a resources to fulfill your goals, needs etc
ANIL
what is a law of demand?
Lydia Reply
its the relationship between price and quantity demanded, they are related conversely. As the price of a good increases, the quantity demanded will decrease and as price decreases the quantity demanded increases (all other factors remaining constant).
Ligia
thank you Ligia I know understand.
Lydia
A demand curve shows the relationship between the price and the quantity demanded... how about the supply curve?
Lydia
Also shows the relationship between price and quantity supply... At higher price, quantity supply increases and vice versa... All other things being equal.
gotah
It's shows an in inverse relationship between the price n quantity demand made by individual in a given period of time
ANIL
why don't ppl ask past paper questions
Melissa Reply

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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