Answer to Question #283810 in Microeconomics for jesjes

Question

Suppose that a technological advance in Japan lowers the world price of televisions.

a. Assume the U.S. is an importer of televisions and there are no-trade restrictions. How does technological advance affect the welfare of U.S consumers and U.S producers? What happens to total surplus in the United States?

b. Now suppose the United States has a quota on television imports. How does the Japanese technological advance affect the welfare of U.S consumers, U.S producers, and the holders of import licenses?

Answer 1

a. The well-being of US consumers and manufacturers is improving as they purchase more technically advanced goods at lower prices. The overall surplus in the United States is growing as less money is spent on goods.

b. The quota is a special protective measure: import is limited if the state believes that certain goods will harm the economic situation of the country or its citizens, and also if there are international agreements on this matter. Most often, with the help of quotas, the state tries to protect local producers of the same competing goods. In the case of quotas, technological progress in Japan will not affect the well-being of US consumers, but it will affect US manufacturers and holders of import licenses.