The paper "The Big U. S. Trade Deficit with China" is a good example of an assignment on macro and microeconomics. What are these four scenarios, and how does each scenario influence: a) future aggregate supply and demand; b) price stability; c) unfolding competitiveness; d) standard of living? From your perspective, which of these four scenarios is the most desirable for the United States? Why? The four scenarios are embargos, tariffs, quotas, and free trade Embargoes Embargoes specifically ban trade in a particular commodity or service, either imports or export or even both.
In this scenario, domestic demand equals domestic consumption. Firms and consumers are forced to stick to the supply possibility curve and the consumption possibility curves. Currently, the US has imposed trade embargoes on North Korean, Iran, Cuba, Venezuela, and Zimbabwe among others. Such decisions are usually politically motivated rather than economically motivated. Future aggregate supply and demand The target countries in embargoes face a shortfall in the demand for their exports and there is no supply for their imports. This, therefore, means that these countries cannot obtain goods and services that they previously obtained though imports and they cannot export their products.
Assuming that there are limited alternative markets, embargoes lead to the collapse of export and import oriented industries in the affected countries. Prices stability Embargoes create a shortage of essential commodities in a market. This results in supplies shifting to the black market where prices are even higher. For instance, the price of Cuban cigars can adequately capture the effect of embargoes on price stability. Given the social status associated with Cuban cigars in the American market, the demand has always been high. An embargo thus restricts supply forcing the prices to shoot upwards in line with the law of demand and supply.
To satisfy the ever-rising demand of Cuban cigars in the American market, the trade shifted into the black market where prices are easily manipulated. Competitiveness Trade embargoes limit competition from foreign players and protects local industries. A government may specifically place trade embargoes on particular products from specific countries or countries to protect local industries. However, benefits gained by domestic players as a result of trade embargoes may be added benefits.
Flannery, Russell. What Can Be Done About The Big U.S. Trade Deficit With China? Forbes Magazine. 2013 http://www.forbes.com/sites/russellflannery/2013/08/03/what-can-be-done-about-the-big-u-s-trade-deficit-with-china/