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Chapter 21: Q. 36 (page 522)

Why is trade a good thing if some people lose?

Short Answer

Expert verified

Benefits the economy in the long run and encourages healthy competition.

Step by step solution

01

Step1. Introduction

International trade refers to the exchange of goods and services between two countries at a fixed exchange rate.

02

Step2. Explanation

Trade is a good thing if some people lose because it benefits the economy in the long run and increases the competition in the economy. Domestic producers lose from international trade but it improves the quality of product by encouraging healthy competition, hence improving standard of living and leading to the long-term economic growth.

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Most popular questions from this chapter

If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations?

You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.

How does protectionism affect the price of the

protected good in the domestic market?

Show graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers?

From the Work It Out "Effects of Trade Barriers," you can see that a tariff raises the price of imports. What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically?
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