intro microeconomics...what is most efficient?

Question

Sorry to ask this question again, but I really need the answer, and the last question didn't yield any quality answers. Points will be awarded...


Lately, China has been producing wooden furniture at prices that US workers can't compete with. As a result the industry has suffered and some 35,000 employees have been laid off.

Which of the following government economic policies would be the most efficient solution to the problem posed by furniture made in China and sold in the United States?

A. Subsidize U.S. furniture manufacturers so they can competitively continue to make furniture

B. Impose a tariff on U.S. imports of furniture made in China

C. Negotiate with China's government to reduce furniture exports voluntarily to the United States

D. Provide unemployment benefits and job retraining for U.S. workers who lose their jobs due to the lower-priced furniture from China

Answer 1

The anwer is D. Let's explore why.

A. Picture a simple supply and demand curve. Set a price above the equilibrium price (horizontal line above equilibrium point). Determine the quantity supplied at this price and the price consumers are willing to pay for that quantity. The area of the box is the cost of the subsidy to tax payers for saving jobs in the furniture sector.

B. Picture a simple supply and demand curve. Set a quantity below the equilibrium quantity (vertical line to the left of equilibrium point). Determine the price consumers will pay for this quantity and the price suppliers will charge for this quantity. The area of the box is the amount of revenue the government raises by imposing the tariff. Consumers are stuck with high furniture prices but domestic producers are insulated from competititon and furniture workers keep their jobs.

C. The graph for Voluntary Export Restrictions looks just like the graph for a tariff except the government doesn't get any revenue. Foreign and domestic producers receive the demand price for the sub-equilibrium quantity. They were tried in the 1980s with Japanese cars.

D. Retraining costs roughly the same as a subsidy program but allows people to find new jobs where they are more productive than they were making furniture. They pay taxes on the income earned at their new job rather than receiving benefits from the government. Consumers have more money to buy more goods because they are not taxed to support the furniture industry and they are not burdened by artificially high prices in the furniture market. Its called the process of creative destruction.

Answer 2

None of the above ditch china period. I'm no micro major or economic expert but you get what you pay for like lead in our toys. I think we create quality factories here in the us where
safety of product is ensured cut back on nothing money isn't real yet it can be created from thin air. Why not have furniture that has pride and high quality. No offense to china but they are communist they have people working for 10 c or less a day the materials are cheap etc.. If china produced a quality product then that should be our main concern. Japan makes better cars therefore we compete for quality of automobiles not prices. If people like it people will buy it screw the cheap plastic parts that contain lead mercury or whatever. Its crazy when American company's outsource to slaves just to save some green because it all backfires in the end Carma is a *****.

Answer 3

I did two courses on microeconomics, but that was two years ago. But I'll give your question a try.

I would say D.
Any form of government intervention causes inefficiencies: (A), (B) and (C) all cause deadweight losses. While (D), helps reinforce another market where the US is weak at, therefore we have a efficient furniture market and an improved "another" market.

Answer 4

D) US workers should be put to more productive use for maximum economic efficiency. Since the pay for US worker doing things other than making furniture is higher, they will be more productive doing other work.

Note: This can be very disruptive to the lives of the workers, particularly older workers, so economic efficiency will not necessarily produce socially desirable outcomes.

Answer 5

Impose a tariff on their slave labor junk. American Furniture is better quality and should be marketable here in this country. If we let this industry fall and die - whats next the Auto Industry and then Aerospace and Medical supplies. China is flooding us with junk that we don't need. Its time to realize that we have to make their junk to expensive to buy and protect American industry from greedy self serving interests.

Answer 6

The answer is D. Take some initiative in that class and read the wealth of nations. You will never have any problems in econ again if you do that.