Would You Benefit in the Short Run? Suppose a country is about to open its markets for trade. You work in an industry that has a comparative disadvantage. Would you be helped or hurt in the short run (explain your answer)? What about your long-run prospects as a worker and consumer?

Application:

Economists have found that tariffs in the United States fall most heavily on lower-income consumers. In the united states, tariffs are very high on textiles, apparel items, and footwear. These goods represent a higher fraction of the consumption of lower-income households than higher-income households. For example, footwear accounts for 1.3 percent of the expenditure of lower-income households, as compared to 0.5 percent for higher-income households.

            Moreover, even within these categories of goods for which tariffs are high, the highest tariffs fall on the cheapest products- precisely those that will be purchased by lower-income consumers. For example, low-price sneakers face a 32 percent tariff whereas expensive track shoes face only a 20 percent tariff. In general, to protect U.S. industries, tariffs are highest on labor-intensive goods, goods that are relatively more labor than capital. But these goods tend to be lower priced. That is why tariffs do fall disproportionately on the poor.

2. According to this Application, tariffs in the United States are very high on textiles, apparel items and footwear. These tariffs disproportionately impact lower-income households because

A. lower-income households tend to purchase more of these items than do higher-income households.

B. these products represent a higher fraction of consumption of lower-income households than higher-income households.

C. the tariffs are only applicable to lower-income households.

D. higher-income households tend to purchase products produced in the United States, which are not subject to tariffs.

3. According to this Application, tariffs in the United States are very high on textiles, apparel items and footwear, and within these categories tariffs are highest on the cheapest products. These tariffs disproportionately impact lower-income households because

A. higher-income consumers tend to refuse to purchase products with tariffs.

B. only lower-income consumers buy cheap, imported products.

C. these cheaper products tend to be purchased by lower-income consumers.

D. higher-income consumers can deduct the tariff from their income taxes.

4. If the tariffs on the textiles, apparel items and footwear mentioned in the Application were replaced by equivalent voluntary export restraints (VERs), low-income consumers would probably

A. be better off.

B. always be worse off.

C. be no better nor worse off.

D. not be subject to the VERs.

5. If the tariffs on the textiles, apparel items and footwear mentioned in the Application were replaced by equivalent voluntary export restraints (VERs), who would benefit the most?

A. low-income consumers

B. high-income consumers

C. the U.S. government

D. the foreign manufacturer