Economics Harvard Case Solution & Analysis

Economics Case Solution

  1.  Clearly, this is a case in which protection is justified because it works; American is better off” Do you agree with this statement? Explain using the welfare effects of a small tariff.

Tariff and its impacts

Tariff is a tax imposes on the imported goods or services to the company. The purpose of the tariff is to raise the prices of foreign products that will result in the attraction of consumers to the substitutes of domestically produced goods. The tariff has the adverse impact on the countries who implement it. Tariff is beneficial for the producers of the country who imposes it. However, it causes the decrease in the competition to the local market and decrease in the local competition results in increase in prices. Moreover, sales of the domestic producer rose through the implementation of the tariff. Thus, the local producers have to increase their efficiency with respect to the quantity of production. In order to meet supply, the producers have to increase the labor force. In response to the hiring of workers, consumer spending increases.

Tariff is a beneficial for the domestic producers, but it affects local consumers. For example, if a country can produce .5 million cycles domestically. It eventually faces the demand of 1.5 million. Hence, it would have to import 1milion from the other country. However, if it imposes Tariff of $300 as per each cycle price the consumers would have to pay $350 surplus than they pay. Hence, the rise in consumer surplus would appear to the country.

Affects of Tariff on Worker’s protection in United States

The research has demonstrated that the tariff cuts cause the reduction in employees' salary due to a reduction in tariff. Similarly due to increasing in the tariff, employees benefited with the high wage rate.

Job security is a big mark on the implementation of Tariff.  Due to foreign product sales in the country for example United States of America, domestic industry will have to reduce its cost. Furthermore, in order to remain competitive in the market, it would have to lay off many of the employees of the entire industry.

It is the advantage of the Tariff that there is the increase in the employment when Tariff is imposed on one industry. Such as, if the foreign industries introduce their products or services in the country and government imposed Tariff on it than employing local labor is necessary then it could help to create employment opportunities in the country.

 In addition to this, price of the goods or services will rise for the consumers. Hence, the consumers will attract towards the domestic products that are cheap and affordable for the price. Thus, the demand for the product of the goods or services will rise, and domestic producers will face the rise in demand. The condition of increase in the demand will lead the domestic producers to increase its production, and the industry will thus, have to increase labor force. This is the general scenario with which citizen of a country gets the benefit.Economics Case Solution

However, there can be some adverse situation through the implementation of Tariff. For instance, as the America leverage import of cement from Brazil and implemented Tariff on it, the domestic industry appeared to the tough competition with the foreign investment. It has to maintain or lower the price of its product in comparison to Brazilian imports. Hence, in order to become cost effective and maintaining its profitability industry had to come up with layoff policies. Lay – off of the employees will give it a competitive edge. Thus, the security of the jobs was undermining in this scenario..................

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