Business Finance
Trade barrier/Protective tariff/Monetary policy

Question Description

I’m studying for my Economics class and need an explanation.

Define the four basic types of trade barriers.Who gains and who loses from a protective tariff?Describe how changes in the Fed’s major policy tools leads to expansionary & restrictive or contractionay monetary policies. ORG. ANSWERS ARE BEST!

Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool's honor code & terms of service.

Final Answer

different types of trade barriers

Tariffs:

  • Tariffs are taxes imposed on imported goods at the port of entry.
  • It is easy to administer and collect, since it is done at one single point which is the point of entry.
  • They are very difficult to avoid or evade.
  • Tariffs help the government earn revenues.
  • If a country does not want a specific good to be imported (for cultural, religious or other reasons) it can impose a very high rate of tariff on that good and reduce and possibly even stop the importation of that commodity.
  • Example:

  • We have ad-valorem tariffs which are also taxes, but they are a definite % of the price of the good.
  • For example a 10% tariff would mean a 60 dollar tax on a 600 dollar imported item.
  • Quota:

  • A quota is a physical quantity limit or maximum amount of a good that can be legally imported over a specific period of time.
  • After tariffs, it is another way to reduce the importation of a good a country does not want to import in market determined quantities.
  • Quotas are difficult to administer, and lead to bureaucratic corruption and smuggling.
  • Bribing the government officials to get a quota allocation or to get higher allocation amounts is a common practice in countries where quota restrictions are imposed.
  • This is true more so in case of underdeveloped and developing economies.
  • They are less efficient than tariffs, although the final objective is the same.
  • Quotas restrict the domestic supply of a good below the level the open market forces of demand and supply would have established.
  • Thus prices are higher than they would otherwise be.
  • This means that some people who could have consumed this good without the quota restriction cannot do so now.
  • Thus the consumption basket of the people goes down.
  • The higher prices (resultant from the quota related supply restrictions) result in a drop in both the consumers and producer surplus.
  • Embargo:

  • Embargo is a total prohibition of trade and commerce with a country.
  • The idea is to economically, financially, socially and politically isolate a country.
  • It has been used by powerful countries to punish a not so strong political opponent.
  • If the USA completely stops its trade with Iran, that would be an embargo.
  • If the USA pressurizes a friendly country, like say UK to also stop trading with Iran, that is called a secondary embargo.
  • USA has a 40 plus year old embargo in place with Cuba.
  • There is no trade and commerce between the two countries.
  • Even private US business cannot do business with Cuba or Cuban companies.
  • Sanctions:

  • A lighter form of an embargo is a sanction, which is a partial restriction on trade and commerce.

  • sobia (165)
    University of Virginia

    Anonymous
    I was on a very tight deadline but thanks to Studypool I was able to deliver my assignment on time.

    Anonymous
    The tutor was pretty knowledgeable, efficient and polite. Great service!

    Anonymous
    I did not know how to approach this question, Studypool helped me a lot.

    Studypool
    4.7
    Trustpilot
    4.5
    Sitejabber
    4.4