Import quota
An import quota is imposed by countries to mitigate the amount spent on import. The countries also reduce the number of goods produced abroad and sold in the home countries. Import quotas are often viewed as a protection measure. Domestic ‘young’ industries in the country are protected from well-developed companies abroad. This gives them a room to grow until they stabilize in the market.
Import quota can also be used by countries to improve the current account balance. This occurs in cases where the amount of import exceeds the amount of export. Also, import quota is used by countries to prohibit the purchase of low-quality goods produced by other countries. The imposition of import quota has a number of advantages and disadvantages to both consumers and companies in the United States.
The reduction of competition from imported good with is beneficial to the United States companies. This would increase the market share for domestic companies. The measure will be detrimental to the customers since they will not be able to purchase imported products. This implies that goods will no longer be perfectly elastic since there will be a significant reduction in the quantity supplied.
A decline in the amount of supply leads to an increase in prices. This implies that consumers will pay more for the goods than the before the restriction of imports so as to restore the market back to the equilibrium. Thus, they will be worse off. On the other hand, the domestic companies will benefit from the increase in prices thus increasing the producers’ surplus.
The decrease in value of Argentinian Peso against the United States dollar
A decrease in the value of the peso against the dollar implies that a considerable amount of Peso will be exchanged against the dollar. This implies that imports will be quite expensive in the domestic market while goods exported will be cheaper in the foreign market. Thus, commodities imported from the Unites States will cost more since more Pesos will be used to acquire more US dollars, thus making the commodities imported quite expensive.
Also, it is true that it will cost less for the Americans to take a vacation at Buenos Aires because the Americans will use fewer dollars to buy Pesos. This makes such as a vacation cheaper than before the devaluation. Devaluation of currencies creates inflationary pressure in the country. This implies that there will be more money chasing for fewer goods. Prices of goods are likely to go up.
The consumption expenditure will increase while savings by household will decline. This is based on the assumption that income earned by households is spent on two items these are consumption and savings only. Thus, it is true that devaluation of a currency of a country affects import, exports, and consumption – investment balance.
Comparative and absolute advantage
It is true that comparative advantage, rather than an absolute advantage, is the foundation of international trade. It is worth mentioning countries can only trade if they produce different goods. Comparative advantage is generally defined as the ”ability of a country to produce a commodity at a lower opportunity cost than other countries”.
On the other hand, absolute advantage focuses on the ability of a country to produce a commodity more proficiently than the countries it trades. Countries have mastered the art of producing goods efficiently thus efficiency cannot form the basis of trade. Besides, technology has improved the efficiency of countries.