The paper "Managerial Economics" is a good example of a macro & microeconomics assignment. From the diagram, when consumption remains constant and production shifted to the left side or drops, the imports increase. The imports in the case at the same percentage at which the production has fallen (Nicholson, W & Snyder, 2009) Therefore, when there is a 10% drop in production, the imports would increase by 10% to meet the consumption level. This is why the distance between A and B is equal to the distance between i1 and i2.
Therefore, the two variables are inversely proportional. Question (c) (i) A tariff on imports tends to add costs of importation. Thus, when the cost of importation of rubber would rise, it means that the prices on the local market would rise too. The imports appeared to be cheaper than the local rubber. However, here, the price of the imports now includes the tariff meaning that they are higher than the previous prices. Assuming that Indian is a small market on the global market when the significant tariff is imposed on the imports, it means that the importers would refrain from importing because they would incur bigger expenses (Maheshwari 45).
Therefore, they would export their rubber top other countries that do not have tariffs on the commodity. They will ignore India since it is just a small market and shift their commodity to bigger markets. This would have a bigger negative impact on India’ s economy. The prices of both the imports and the locally manufactured rubber would be extremely high. Furthermore, when the importers withhold their rubber, there would be a serious shortage hence; the prices of the available rubber would shoot up beyond expectations (Roy, Tirthankar, 7), This would be very much different from the global market price because the exporting countries would sale their rubber to countries that do not impose a tariff to the imports.
It may imply that India would be left to struggle with its shortage of rubber while the other countries enjoy better prices on the market. At this moment when production is drooping, India should not try to impose a tariff on the imports for it to have the price of rubber manageable.
Ehnrenhaft, P. “Policies on imports from economies in transition: Two case studies”. (1997) World Bank publications.
Maheshwari, Y. Managerial economics. (2012). PHI Learning Pvt Ltd.
Nicholson, W & Snyder, C. Intermediate Microeconomics and its Application. (2009). 11 Ed.Dartmouth Collge; Cengage Learning
Roy, Tirthankar. "Trading Firms in Colonial India." Business History Review 88.1 (2014): 9-42. Academic Search Premier. Web. 7 Sept. 2014.