Should imports be limited by government policy?

Question

People sometimes argue that imports should be limited by gov. policy. Suppose a gov. quata on the quantity of imports causes net exports to rise. Using the circular flow diagram, explain why total expenditures and national output may rise after the quota is imposed? Who is likely to benefit from the quata? who will be hurt? Explain why the gov. would become involved in the economy through its imposition of quates.

Answer 1

PART 1
First of all, govts intervene in importation, let's say they impose quota restrictions;
1.to protect domestic firms or declining industries from unfair competion from foreign producers exporting the substitute goods. The govt is trying to restrict the availability, but allowing a shorter supply in the local market to induce a little competition, that would further stimulate greater efficiency at home.

2.Another reason is to control the consumption of goods that offset the social well being and health of individuals and others eg; alcohols and cigarettes cause diseases which sever the burden on healthcare costs or social services like rehabilitation,foster care for dysfunctional families of alcoholics etc..
Non-economic arguments imply that
3. govt wants to maintain as much diversity in society ,between differentiated brands of both local and foreign firms.
4. to preserve tradional/rural ways of life from highly competitive foreign goods
5.To maintain a degree of self-sufficiency as a back up for the incidence of war

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PART 2
If the restriction of import quota causes the net exports to rise, the extra export expenditure will increase firms sales revenues. Firms will be stimulated to incease their production output, thus forcing total output in the economy to rise, raising the factor payments like workers wages, salaries, rents,interests -giving rise to National income.
A simplified diagram as follows;
export expenditidure (up)---> injection(up)--->factor payments (up)--->National Income(up)--->Economic growth(up)

As to whom benefits from the import quota, is partly answered from part1. In the short-run, the economic growth growth should increase employment opportunities to accomodate the firms production potential.

Answer 2

I would provide you with an insightful informed answer if this wasn't your homework. I TA a class similar to the one you're taking and giving you solid answers isn't going to help you learn the material yourself.

First off... circular flow is a insufficient model to discuss the effects of quotas. If you use a supply and demand graph with the world price given you can do some simple welfare analysis which would show net welfare loss due to a quota. There are also competition/productivity externalities which are limited by quota policies.

Some clues
1)First part is just an accounting execise. Look at your defintions for total expenditure and national output for your answer.
2)For benefits and "hurt" think about it logically. You only have three people to consider: firms, government and consumers.
3)For your explanation of government policy, rely on your answers for (2). You could also consider possible externalities involved in the decision.

Answer 3

the federal authorities does what it needs to!!! i'm able to't comprehend why they do no longer have a 'coverage & taxes' on 'idiots' (i love that be conscious!!!) that they enable in 'our united states of america!!! Export? Huh??? Import? Yeah!!! You damn-betcha!!!

Answer 4

Imports are limited. That's what tariffs are for.

For the rest, do your own homework.

Answer 5

Do your own homework :-)