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Chapter 21: Problem 5

Neither free trade nor prohibited trade comes with benefits only. Both come with benefits and costs. Therefore, free trade is no better or worse than prohibited trade. Comment.

Short Answer

Expert verified
It's not accurate to state universally that free trade is 'no better or worse' than prohibited trade. The impacts of these policies are nuanced and context-dependent, involving several economic and social trade-offs.

Step by step solution

01

Definition of Terms

Firstly, let's define the terms: Free trade is a policy in which the government does not restrict imports or exports. Prohibited trade, on the other hand, involves restrictions or bans on certain goods or with specific countries.
02

Benefits of Free Trade

Free trade allows countries to concentrate on producing goods they can make most efficiently. It encourages competition, thereby promoting innovation and productivity. For consumers, it often results in lower prices and a greater variety of goods. However, it can also lead to job losses in industries that can't compete internationally.
03

Costs of Prohibited Trade

Prohibited trade can protect domestic industries from international competition, which can preserve jobs. It can also be used as a geopolitical tool. However, it can limit the variety and increase the price of goods for consumers. It can also stifle innovation and productivity by reducing competition.
04

Conclusion

Given these different factors, it is challenging to universally state whether free trade or prohibited trade is 'better'. It depends on several factors, including a country's economic profile, geopolitical situation, and societal values. There are always trade-offs to consider.

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Most popular questions from this chapter

The desire for profit can end up pushing countries toward producing goods in which they have a comparative advantage. Do you agree or disagree? Explain your answer.

Suppose the landmass known to you as the United States of America had been composed, since the nation's founding, of separate countries instead of separate states. Would you expect the standard of living of the people who inhabit this landmass to be higher, lower, or equal to what it is today? Why?

Consider two groups of domestic producers: those which compete with imports and those which export goods. Suppose the domestic producers that compete with imports convince the legislature to impose a high tariff on imports-so high, in fact, that almost all imports are eliminated. Does this policy in any way adversely affect domestic producers that export goods? If so, how?

Some economists have argued that, because domestic consumers gain more from free trade than domestic producers gain from (import) tariffs and quotas, consumers should buy out domestic producers and rid themselves of costly tariffs and quotas. For example, if consumers save $$\$ 400$$ million from free trade (through paying lower prices) and producers gain $$\$ 100$$ million from tariffs and quotas, consumers can pay producers something more than $$\$ 100$$ million but less than $$\$ 400$$ million and get producers to favor free trade too. Assuming that this scheme were feasible, what do you think of it?

If there is a net loss to society from tariffs, why do tariffs exist?
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