Answer to Question #225584 in Economics for Ota

Question

Export embargoes cause greater losses to consumer surplus if the target country?

Answer 1

An extreme form of state restrictions on foreign trade are economic sanctions, for example, a trade embargo - a prohibition by the state of the import into or export from any country of goods. A country imposes an embargo on trade with another country, usually for political reasons. Economic sanctions against a country can also be collective in nature, for example, when they are imposed by a UN decision.

The embargo causes economic damage to both the country imposing the embargo and the country against which it is imposed. In addition, for third countries that have not joined the embargo, there is an opportunity to receive additional benefits.

The purpose of the embargo, however, is not to obtain economic benefits, but to put pressure on the country to achieve certain economic goals. From this point of view, the success of the embargo is more likely if: firstly, the country introducing the embargo has a high elasticity of export supply, that is, it can relatively painlessly reduce the volume of its exports; secondly, the country against which the embargo is being introduced has a low elasticity of demand for imports, that is, it is highly dependent on foreign trade; thirdly, if the imposed sanctions are unexpected and large-scale.