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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 9, Problem 5QR
Textbook Problem
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List five arguments often given to support trade restrictions. How do economists respond to these arguments?

To determine
The arguments in favor of and against the trade restrictions.

Explanation of Solution

International trade is the exchange of goods and services between different nations in the world. The exchange will take place where the two main processes are exports and imports. Exports are the sale of domestic goods to the foreigners and imports are the purchase of foreign goods by the domestic country. Consumer surplus can be explained as the difference between the highest price that the consumer is willing to pay and the actual price that the consumer pays. The difference between these two prices is known as the surplus to the consumer. The producer surplus is the difference between the minimum willing to accept price of the seller and the actual price that the seller receives for the commodity.

When there is international trade, the domestic price level will give way to the international price level and thus, the firms that produce commodities with the lowest opportunity cost will be benefited and the others will be hurt. Thus, there are some main arguments against international trade and they are as follows:

(1) The importing of goods from the foreign countries at a lower rate will destroy the employment sector of the domestic market. As a result of the lower priced foreign goods, the employment in the domestic sector will fall due to higher costs; it is harmful to the domestic economy.

(2) Imports will destroy the industries which may be vital for the domestic economy. Thus, for the growth of the domestic economy, importing should not be allowed.

(3) The new industries in the domestic market are starting to grow and they need protection in order to become strong and compete against the strong, international competitors...

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