chapter 14 theoretical questions Flashcards
Explain how a nation can gain from trade even though not everyone is made better off. Is this a contradiction?
This is not a contradiction
The gains from trade imply that the winners could compensate the losers completely and still have gains left over
Some people may lose jobs (in the example in the text, as the United States moved toward specialization in steel, American workers were shifted out of the bread industry and into the steel industry), but others benefit from the higher demand for their product (workers in the steel industry)
As long as the winner’s gains are greater than the loser’s losses, we can conclude that the nation wins
Many people believe that the goal of international trade should be to create jobs
Consequently, when they see workers laid off due to a firm’s inability to compete against cheaper and better imports, they assume that trade must be bad for the economy. Is this assumption correct?
Why, or why not?
The goal of trade is to improve a nation’s allocation of its resources so they are directed to their most valuable use
Trade is not about creating jobs, but is about raising the standard of living through a more efficient allocation of resources
Trade may cause workers to become laid off if they are in inefficient industries that do not produce according to the national comparative advantage
While this may be hard on the people who lose their jobs, it also frees up labor and capital so it can be directed to better uses
