<< Chapter < Page Chapter >> Page >

By the end of this section, you will be able to:

  • Asses the complexity of international trade
  • Discuss why a market-oriented economy is so affected by international trade
  • Explain disruptive market change

Economists readily acknowledge that international trade is not all sunshine, roses, and happy endings. Over time, the average person gains from international trade, both as a worker who has greater productivity and higher wages because of the benefits of specialization and comparative advantage, and as a consumer who can benefit from shopping all over the world for a greater variety of quality products at attractive prices. The “average person,” however, is hypothetical, not real—representing a mix of those who have done very well, those who have done all right, and those who have done poorly. It is a legitimate concern of public policy to focus not just on the average or on the success stories, but also on those have not been so fortunate. Workers in other countries, the environment, and prospects for new industries and materials that might be of key importance to the national economy are also all legitimate issues.

The common belief among economists is that it is better to embrace the gains from trade, and then deal with the costs and tradeoffs with other policy tools, than it is to cut off trade to avoid the costs and tradeoffs.

To gain a better intuitive understanding for this argument, consider a hypothetical American company called Technotron. Technotron invents a new scientific technology that allows the firm to increase the output and quality of its goods with a smaller number of workers at a lower cost. As a result of this technology, other U.S. firms in this industry will lose money and will also have to lay off workers—and some of the competing firms will even go bankrupt. Should the United States government protect the existing firms and their employees by making it illegal for Technotron to use its new technology? Most people who live in market-oriented economies would oppose trying to block better products that lower the cost of services. Certainly, there is a case for society providing temporary support and assistance for those who find themselves without work. Many would argue for government support of programs that encourage retraining and acquiring additional skills. Government might also support research and development efforts, so that other firms may find ways of outdoing Technotron. Blocking the new technology altogether, however, seems like a mistake. After all, few people would advocate giving up electricity because it caused so much disruption to the kerosene and candle business. Few would suggest holding back on improvements in medical technology because they might cause companies selling leeches and snake oil to lose money. In short, most people view disruptions due to technological change as a necessary cost that is worth bearing.

Now, imagine that Technotron’s new “technology” is as simple as this: the company imports what it sells from another country. In other words, think of foreign trade as a type of innovative technology. The objective situation is now exactly the same as before. Because of Technotron’s new technology—which in this case is importing goods from another county—other firms in this industry will lose money and lay off workers. Just as it would have been inappropriate and ultimately foolish to respond to the disruptions of new scientific technology by trying to shut it down, it would be inappropriate and ultimately foolish to respond to the disruptions of international trade by trying to restrict trade.

Questions & Answers

firms in an oligopoly can act like a monopoly when they form a cartel,which can be based on agreement or rather a court order,hence this leads to increasing barriers to entry for other firms
Jacob Reply
economic inefficiency
alino Reply
what courses the curve to move
Siphelele Reply
is it possible to say scarcity is the out come of excessive greed on the part of human?
Kwame Reply
TU=3Q2-2Q+4.what is Total utlity maximize?
Lema Reply
what is demand
Brenda Reply
Total utlity=3Q2-2Q+4.what is maximum TU?
Lema
with excues,can i help you this question?
Lema
Where can i find the Quizzes
Thubelihle Reply
what is ppf?
Ishimwe Reply
production possibility frontier
Alam
the production possibility frontier (PPF) is a curve that illustrates the variations in the amounts that can be produced of two products if both depend upon the same finite resource for their manufacture
Alam
thank you!
Ishimwe
it is the production possibility frontier
Brenda
In perfect competition, some firms make profit, others breakeven and others make losses. Explain
ALVIN Reply
define law of demand and draw demand curve
Naseer Reply
state that the higher the price of a product the lower the quantity demanded
nonduduzo
what is the price elasticity of demand a unit free measure of the sensitivity of the quantity demand to a price change?
ada Reply
what is normative economics
kanakadurga Reply
In normative economics we try to understand whether a mechanism is desirable or not.
arshad
not
Mark
consider the market for chocolate chip cookies .suppose there is an increase in the price of cake flour used in the production of chocolate chip cookies . Demonstrate graphically and explain the effects this will have on the equilibrium price and quantity of chocolate chip cookies.
Costa Reply
what is price demand?
Alamin Reply
what is the price demand ?
Alamin
what is cardinal approach?
Alamin
importance of elasticity to an economy
Nayiga Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Microeconomics' conversation and receive update notifications?

Ask