International Trade and Trade Restrictions

INTERNATIONAL TRADE AND TRADE RESTRICTIONS 6

PART A

Question One

Monopoly is a market system that allows the single supplier orseller to set the prices of goods, as well as determine the amount toproduce. Futures Unlimited Corporation has a legal monopoly from thegovernment in terms of a license to produce and distributeplutonium-fueled transportation. This has limited other competitorsfrom entering the market and has also given the company the leeway toexploit the consumers. The existence of single price monopoly willensure that the company charges a single price across the market forall the consumers. However, the aim of any producer or seller is toset a high price to maximize the profit (McEachern, 2014). In thiscase, the element of a single price monopoly will ensure that FuturesUnlimited Corporation charges high prices to maximize its profits.Additionally, the firm may also regulate output to create a demandsurplus hence calling for an increase in the price. The firm willhave the legal power to set prices that in line with the profitmargins they need. Since there is no other supplier in the market,the consumers will have no choice but to buy the isotope of plutoniumat the set prices.

Question two

Since Futures Unlimited Corporation has legal monopoly, it is thesole decision of the company to determine the output and the pricesto charge for the product. It is essential to state that in a perfectcompetition, the suppliers agree on a price that is acceptable to allthe members. However, in a monopolistic market situation, the priceis set by the single supplier in such a way that he maximizes theprofits. This is the situation with Futures Unlimited Corporation.The firm has the prerogative to set the price and output levels. Theway through which the company sets the price and an output level isthrough sole decision making. In other words, the managers of thecompany do not have to consult anybody about the price and the levelof output. The firm only sets prices and output levels are favorableto the maximization of profits. The decision making process on pricesand output is dependent on how such prices and output maximizesprofits. The sole aim of a monopoly is to maximize profits throughsetting high prices and reducing output hence creating demandsurplus.

PART B

Question one

Tariffs and quotas are mainly set to ensure that there is a balancein trading between various countries. Tariffs are taxes imposed onimports by governments in an aim to collect revenue and protect localindustries from competition. On the other hand, quotas arerestrictions on the amount, quantity or value of an import. This isalso aimed at protecting the local industries and fosters theirgrowth. One of the primary questions about tariffs and quotas iswhether they are beneficial to the consumer research has indicatedthat tariff lead to increase in prices. This has a direct negativeeffect on the consumer since it reduces his or her purchasing power.In this regard, it is abundantly clear that tariffs do not benefitthe consumer (McEachern, 2014). It denies the consumer the freedom topurchase imports at an affordable price and forces him to foregoanother good in order to afford the import. Although tariffs havebeen credited for increased local employment, it is evident that itis not beneficial to the consumer.

Quotas are only beneficial to the local industries which areprotected from the competition of imports. It is, however, worth tonote that the consumer may benefit when a government restricts theimportation of foods such as maize which may be suspected of beingpoisonous. Quotas, however, deny the consumers the choice and varietyof commodities from imports (McEachern, 2014). Therefore, quotas maybe said to be both beneficial and harmful to the consumer. Lack ofcompetition in the market may make the local producers to increasethe prices of commodities hence oppressing the consumer.Additionally, imports provide the much needed variety of commoditieswhere the consumer can choose from.

Question two

  1. The opportunity cost of producing gloves and hats in Russia will be the number of hats and gloves that would have been produced in Panama. The numbers will be 180 gloves and 90 hats. It is clear that this is a higher opportunity cost since the production of gloves and hats in Russia is lower than that in Panama. On the other hand, if Panama produces the gloves and hats, the opportunity cost will be the quantities that would have been produced in Russia which are 20 gloves and 80 hats.

  2. It is evident that the two countries are producing similar products and therefore trading might proof difficult. Both countries are producing gloves and hats although at different levels. If there were to be trade between the two countries, it is evident that Russia would import gloves and hats from Panama since the production in Panama is high than in Russia. Panama would not, however, import from Russia due to its low production.

References

McEachern, W. A. (2014).&nbspEconomics: A contemporaryintroduction. New York: Sage publishers.