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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

what is demand curve?
Januka Reply
different level of quantity demanded. negative slope or downward sloping due to inverse relationship between price and quantity
ronald
national income
Januka
GDPmp+NFIA=National income
Royalranjan
difine
Januka
define
Januka
market price of all the good and services produced inside the territory of the nation in addition to the net factors income from abroad is equal to the national income
Royalranjan
what is NFIA
Hari
NFIA stands for Net factors income from abroad the difference between factors income from abroad and factors invested/send to abroad is said to be the net factors income from abroad,which must be added to GDP to find out the national income.NFIA May be positive or can be negative.
Royalranjan
Any examples for Negative
Hari
in the mixed economy of India,our NFIA Is contentiously going in negative way
Royalranjan
as we are investing a lot in abroad than we are incoming from there
Royalranjan
above 5 page define national income and economic walfare
Januka
so what
Royalranjan
if you're keep asking me questions from intermediate level and expecting answer of master level then you are fooling yourself
Royalranjan
what does an individualdemand goodsand services?
Januka Reply
individual can be persons or firms
ronald
@Ronald_pradhan individual can be both household or farm
Royalranjan
define demand function
Januka
equation which shows functional relationship between quantity demanded and factors that affect demand for the goods. price income etc
ronald
demand function formula
Januka
quality of demand is proportional to price of the commodity
Royalranjan
If total utility remains Constant with the compensation of one more unit of a commodity marginal utility must be
Rizwan
Can anyone give me a answer
Rizwan
marginal utility must be zero
Royalranjan
of that extra consumed unit of the commodity
Royalranjan
If Engel curve is negatively sloped the commodity is
Rizwan
what is demand
Rasmiranjan Reply
what do you mean by money market
mahesh
money market deals with short term high quality debt securities that are issued by government and barrowers
Chippala
OK bro
mahesh
the demand for a commodity is it's quantity which consumer are able and willing to buy at various prices during a given period of time.
mahesh
what is economics environmental?
mahesh
the economic factors of such as income, inflation, interest rates, productivity, wealth influence by buyers behaviour of consumers in society
Chippala
What is economic planning
PATRICK
basically an individual or a govt. always wants maximum satisfaction with their limited resources,they have to decide that in which mean they will get the best outcome from the resources without any shortcomings.This is called as Economic planning.
Royalranjan
@Rasmiranjan_sahoo Normally demand for a commodity is said to be demand.But actually in economics an effective demand is said to be demand ,that contains (1)Desire for a commodity (2) Willingness to purchase it/or spending money on it (3) Ability to pay the money value
Royalranjan
@Mahesh_chandra in a economy market is divided into 3 types,such as (1)Goods market (2) factor market (3)Money market/financial market the market in which financial interaction happen between the borrower and the lord is said to be financial market.The lord may be private or govt.
Royalranjan
what is diminishing return to scale?
Pankaj
what are the other variables that affect the demand aand supply of the good and services
sahil Reply
the supply and demand of a commodity is affected by 2 way such as price of the good and non price factor non price factor refer to the income,taste of the consumer,the price of the substitute commodity, climate, population, distribution of wealth and income and the rules and regulations of the gover
Royalranjan
the supply of goods and services to be always price to be declined most important. so consumers purchase low price demanded and consuming highly, high price to demanded and consumed low goods and services
Chippala
can't get what you are saying about
Royalranjan
in the monopolistic competition ,do many firms make identical things or not, or do only one firm sell identical but makes many firm?
prakash Reply
only one firm sells
Patrick
identical product
Patrick
who is economic?
Umesh Reply
it's nt a question u ask ths question what is economic.....
BHARATI
economics is the study of human behaviour in many prospects . And economic also deals with scarcity .
abhinav
economics deals everything in the world
Khagan
Economics is the growing branch of knowledge.
dilleswar
there not particular definition of economics.
dilleswar
whate is micro economic
Anwar Reply
micro is individual demand
Betrisia
study of individual firm or individual sector is micro economics
Khagan
it price theory
Khagan
Micro economics is a indidual discussion economical section. It is another name price theory
Chippala
who is adam smith
Avishek Reply
u dnt knw father of economics
BHARATI
adam smith
Januka
Can a monopoly sell the same product at different prices?
Maria Reply
I HAVE TAKEN admission on BA HONS ECONOMICS BUT I DONT HAVE MATHS .... CAN U TELL ME THE MAJOR PORTIONS OF MATHS CONCEPTS WHICH ARE REQUIRED?
ANDRO Reply
derivatives integrations statistics
BHARATI
WITH THESE I CAN CLEAR THE WHOLE SEMESTERS ?
ANDRO
hmmm
BHARATI
CAN U SUGGEST ME SOME BOOKS FOR IT
ANDRO
welth of nation dascapital
BHARATI
micro macro economic money bnkng
BHARATI
human action so mny bks r thr
BHARATI
in proper infrmtn to find it google
BHARATI
ohk ... from which semester the maths portions will require
ANDRO
3rd nd 4th
BHARATI
Can a monopoly sell the same product at different prices?
Maria
At a point where the slope of short run production function is zero marginal product of variable factor is
Rizwan
how does it actually work
Huda Reply
what ?
abhinav
what is definition of demand ?
Yusuf Reply
desire, willing and ability to pay
akash
commonly demand means desire for a commodity but in economics sense demand refers to desire for a commodity and willingness to pay with backed by ability to pay
Captain
Demand is the quantity of goods and services that a consumer is willing and able to purchase at giving period of time
Patrick
what is Hicks effect?
Vinay Reply
hicks effect is substitution effect
Wahaj
what is market demand?
Deepjyoti Reply
whai is price elasticity?
Deepjyoti
Market demand is the horizontal summation of all individual demand for a particular commodity at various prices over a given period of time.
Patrick
what price elasticity ? Demand or supply ?
abhinav
a measure of responseivenes of consumer to a change in the price of particular good
Yohannes
market demand means 1.how to produce 2.whom to produce 3.when to produce
Yohannes
What is individual demand?
Deepjyoti Reply
Quantity demanded by a single person is Individual Demand .
abhinav
Thanks
Deepjyoti
what is difference between micro and macro economics?
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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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