Econ355 Essay

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Econ 355 Final Study Guide Q1: Evaluate the following statements, arguments. 1."Keep Money at Home" Argument The proponents of this argument claim that when domestic residents buy imported goods, the country gets the goods and the foreigners get the money. On the other hand, when the residents buy domestic goods, the country keeps both the goods and the money. Hence the country gets richer by preventing imports. Problems: The sheer fallacy of this argument is rooted in the crude mercantilist theory, which maintained that money is wealth itself. Money paid for foreign imports must return sooner or later in the form of payments for imports or as investment in the US. Money has no ultimate redemption value except in the country of its issue. 2. Home Market Argument This argument claims that "the domestic producers have a right to the domestic market. By eliminating foreign imports, more jobs can be created." Problems: The fallacy of this argument can be seen from noting that any shift from imports to domestic production is offset by a contraction of exports. The importing industry can increase its output only by attracting more resources from the export industry. 3. Equalization of Costs Argument "We need to neutralize any advantage the foreign producers may have over the domestic producers, in lower taxes, or cheap labor." "We need to equalize the costs of production between foreign and domestic producers." In this way, we level the playing field. Problems: A close examination of this argument reveals many problems. Producers in any country have different costs for the same product. If the goal is to protect all domestic producers against all foreign producers, we must equalize the cost of the most efficient foreign producers and the cost of the least efficient domestic producers by adding a tariff. In this case, a relatively efficient domestic
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