5.5: Does Free Trade Lead to gains for All? Flashcards
What are some unrealistic assumptions made in the simple model of free trade?
Unrealistic assumptions include a simplified world with only two countries and two goods, no transportation costs, fixed exchange rates, free movement of resources, constant returns to scale, and no consideration for the dynamic changes resulting from free trade.
How does the Ricardian model’s basic proposition about countries exporting goods they are efficient at producing hold up in the real world?
Despite its shortcomings, the basic idea that countries export goods they are efficient at producing holds true in the real world, supported by data and research.
What does the analysis of Nobel Prize-winning economist Paul Samuelson suggest about the theory of comparative advantage in certain circumstances?
Samuelson’s analysis suggests that in specific situations, the theory of comparative advantage predicts that a rich country might be worse off by switching to a free trade regime with a poor nation, contrary to the standard interpretation.
How has new trade theory impacted the strength of the case for unrestricted free trade?
With the introduction of new trade theory, the case for unrestricted free trade, while still positive, has been argued to lose some of its strength, especially when considering real-world complexities and specific circumstances.
Despite the unrealistic assumptions, what have economists generally found about the relationship between comparative advantage and international trade?
Economists have generally found that the basic principle of countries specializing in goods they are efficient at producing holds, leading to exports of those goods and overall trade patterns, although real-world complexities might modify the outcomes.
What is the impact of immobile resources on the implementation of a free trade regime?
Immobility of resources means that they do not easily shift from producing one good to another.
When a country shifts to free trade, certain industries might decline, leading to job losses and challenges for workers transitioning to new sectors.
How does the immobility of resources create friction in the transition to free trade?
Immobility of resources creates friction in the transition to free trade because workers may not possess the skills required in new, specialized industries.
For example, a textile worker may not have the qualifications for knowledge-intensive jobs like software development.
Why do some workers and industries oppose the move toward free trade?
Workers and industries oppose free trade because they face job losses and economic uncertainty.
Industries that become less competitive due to global trade may see reduced production and potential closures, leading to resistance against free trade policies.
How do governments typically address the challenges faced by workers affected by the shift to free trade?
Governments often provide assistance by retraining workers who lose their jobs due to free trade.
This support helps affected individuals acquire new skills, easing their transition into different industries.
