Question 3 Answer the following questions A. Explain how a subsidy on agricultur

Question

Question 3 Answer the following questions A. Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar. B. Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries. C. Who does protectionism protect? What does it protect them from? D. Name and define three policy tools for enacting protectionism. E. How does protectionism affect the price of the protected good in the domestic market?

Explanation / Answer

Subsidies on agricultural goods such as sugar in one country, by lowering the price of those goods, make them more competitive against foreign goods, thereby reducing foreign competition. They adversely affect the income of foreign producers of imported sugar because when subsidy in the form of welfare payments, housing loans,student loans and farm subsidies is given to domestic producers, they can sell the product at low price. Thus, consumers demand more for their product instead of high-priced foreign products and hence foreign producers suffer loss.

Barriers to trade are often called "protection" because their stated purpose is to shield or advance particular industries or segments of an economy. From an economic perspective, though, the costs to the economy almost always outweigh the benefits enjoyed by those who are protected.

Protectionism are government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition.

The three policy tools that have been used to achieve protectionist goals include:

1. Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usually vary according to the type of goods imported. Import tariffs will increase the cost to importers, and increase the price of imported goods in the local markets, thus lowering the quantity of goods imported, to favour local producers. Tariffs may also be imposed on exports, and in an economy with floating exchange rates, export tariffs have similar effects as import tariffs. However, since export tariffs are often perceived as 'hurting' local industries, while import tariffs are perceived as 'helping' local industries, export tariffs are seldom implemented.

2. Import quotas: To reduce the quantity and therefore increase the market price of imported goods. The economic effects of an import quota is similar to that of a tariff, except that the tax revenue gain from a tariff will instead be distributed to those who receive import licenses. Economists often suggest that import licenses be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff.

3. Direct subsidies: Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against imports. These subsidies are purported to "protect" local jobs, and to help local firms adjust to the world markets.

When protectionism is granted to products in the domestic market, price of the protected good becomes low as compared to foreign goods, thus increasing their demand .

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