a) ??When the United States placed a tariff on steel imports in 2002, foreign pr
ID: 1253052 • Letter: A
Question
a) ??When the United States placed a tariff on steel imports in 2002, foreign producers naturally complained, but there were also complaints from U.S. firms operating in other industries. Why would other types of firms strongly object to the tarriffs on U.S. steel imports?b)? Name two factors that will increase the demand for labor, and two factors that will increase the supply of labor?
c) Explain what is it meant by, "internalizing an externality"?
d) Most firms in an oligopoly earn economic profit, yet addional firms do not enter the market. Explain why not?
Explanation / Answer
A.) By imposing tariffs on foreign steel, other industries that don't manufacture steel but use it as a raw materials have to pay more. Tariffs are an entry-barrier to competition and causes US steel manufacturers to be able to charge more. B.) Higher demand for goods necessitates more labor and/or technological improvements. Cost of labor also affects labor demand. Likewise for supply, higher wages will increase the supply of labor as would a poor economy (where more laborers are available). C.) Externalities are costs by associated but not directly caused or received. In this example, Tariffs are external costs for industries that use steel, but not a direct cost of the steel itself. D.) Oligopolies earn economic profit by definition. They are either natural or government-mandated oligopolies, usually because they benefit highly from economies of scale and there are also usually very high entry costs to the industry. Perfectly competitive markets have zero cost of entry. Car manufacturers are a perfect example of this. The cost to start manufacturing cars profitability would be in the hundreds of billions of dollars. Thus if car manufacturers start earning very high profits, additional competitors will not necessarily enter the market. (The opposite is true, which explains why there is great incentive for the United States to assist ailing oligopolies as it would cost society far more to have one fail and be replaced by a new firm).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.