KCSE BUSINESS STUDIES TOPICAL QUESTIONS AND ANSWERS

Problems encountered from external revenue

27/11/2018

PREVIOUSLY: STATE FOUR REASONS WHY CHOICE IS IMPORTANT IN THE SATISFACTION OF HUMAN WANTS.

What is external revenue?

External revenue is money collected by a government by imposing duties on imports and other international transactions.

What are the problems encountered from external revenue

01	Raising of prices on imports and exports When tariffs are collected from imports and exports, they raise the their prices thus making them expensive. This is a disadvantage to the consumer.

Raises the cost of doing business for exporting and importing industries

Suppose a computer manufacturing company in China is dependent on American microprocessors for its production. If America imposes tariffs on all microprocessors exported to international market and China imposes tariffs on all imported microprocessors imported to her market, will lead to increase in the cost of production this will also increase prices of computers for end users.

Cause a decrease in product quality

Decrease in product quality results from companies doing everything possible to reduce the cost of production in order to maximize profits. For this to happen, they will compromise quality in order to compensate for the tariffs.
They may also opt to hire cheap unskilled labor or source alternative raw materials of poor quality.

Result in trade wars between nations

High tariffs and quotas can result in a trade was between nations. Currently there is a trade war going on between America and China because of trade imbalance. America is accusing China for exporting more to American market than they import, while China is arguing of globalization effect.
To balance the trade, America has slapped tariffs on some of the Chinese imports thus making Chinese products expensive in the their local market. This aims at scaring American consumers from consuming Chinese products. China has also retaliated by imposing tariffs on American agricultural products such as Soy beans. This has extensively affected the consumption behavior in both countries.

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