eco wk2

5/11/17, 9(29 AM

Page 1 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

Now suppose that, in a political upset, Isoland elects a new president. The president campaigned on a platform of “change” and promised the voters bold new ideas. Her first act is to assemble a team of economists to evaluate Isolandian trade policy. She asks them to report on three questions:

If the government allows Isolandians to import and export textiles, what will happen to the price of textiles and the quantity of textiles sold in the domestic textile market? Who will gain from free trade in textiles and who will lose, and will the gains exceed the losses? Should a tariff (a tax on textile imports) be part of the new trade policy?

After reviewing supply and demand in their favorite textbook (this one, of course), the Isolandian economics team begins its analysis.

9-1b The World Price and Comparative Advantage The first issue our economists take up is whether Isoland is likely to become a textile importer or a textile exporter. In other words, if free trade is allowed, will Isolandians end up buying or selling textiles in world markets?

To answer this question, the economists compare the current Isolandian price of textiles to the price of textiles in other countries. We call the price prevailing in world markets the world price. If the world price of textiles is higher than the domestic price, then Isoland will export textiles once trade is permitted. Isolandian textile producers will be eager to receive the higher prices available abroad and will start selling their textiles to buyers in other countries. Conversely, if the world price of textiles is lower than the domestic price, then Isoland will import textiles. Because foreign sellers offer a better price, Isolandian textile consumers will quickly start buying textiles from other countries.

world price the price of a good that prevails in the world market for that good

In essence, comparing the world price and the domestic price before trade indicates whether Isoland has a comparative advantage in producing textiles. The domestic price reflects the opportunity cost of textiles: It tells us how much an Isolandian must give up to obtain one unit of textiles. If the domestic price is low, the cost of producing textiles in Isoland is low, suggesting that Isoland has a comparative advantage in producing textiles relative to the rest of the world. If the domestic price is high, then the cost of producing textiles in Isoland is high, suggesting that foreign countries have a comparative advantage in producing textiles.

As we saw in Chapter 3, trade among nations is ultimately based on comparative advantage. That is, trade is beneficial because it allows each nation to specialize in doing what it does best. By comparing the world price and the domestic price before trade, we can determine whether Isoland is better or worse at producing textiles than the rest of the world.

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 2 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

Quick Quiz The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold. If Autarka were to allow free trade, would it import or export wool suits? Why?

9-2 The Winners and Losers from Trade

To analyze the welfare effects of free trade, the Isolandian economists begin with the assumption that Isoland is a small economy compared to the rest of the world. This small-economy assumption means that Isoland's actions have little effect on world markets. Specifically, any change in Isoland's trade policy will not affect the world price of textiles. The Isolandians are said to be price takers in the world economy. That is, they take the world price of textiles as given. Isoland can be an exporting country by selling textiles at this price or an importing country by buying textiles at this price.

The small-economy assumption is not necessary to analyze the gains and losses from international trade. But the Isolandian economists know from experience (and from reading Chapter 2 of this book) that making simplifying assumptions is a key part of building a useful economic model. The assumption that Isoland is a small economy simplifies the analysis, and the basic lessons do not change in the more complicated case of a large economy.

9-2a The Gains and Losses of an Exporting Country Figure 2 shows the Isolandian textile market when the domestic equilibrium price before trade is below the world price. Once trade is allowed, the domestic price rises to equal the world price. No seller of textiles would accept less than the world price, and no buyer would pay more than the world price.

FIGURE 2 International Trade in an Exporting Country Once trade is allowed, the domestic price rises to equal the world price. The supply curve shows the quantity of textiles produced domestically, and the demand curve shows the quantity consumed domestically. Exports from Isoland equal the difference between the domestic quantity supplied and the domestic quantity demanded at the world price. Sellers are better off (producer surplus rises from C to B + C + D), and buyers are worse off (consumer surplus falls from A + B to A). Total surplus rises by an amount equal to area D, indicating that trade raises the economic well-being of the country as a whole.

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 3 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

After the domestic price has risen to equal the world price, the domestic quantity supplied differs from the domestic quantity demanded. The supply curve shows the quantity of textiles supplied by Isolandian sellers. The demand curve shows the quantity of textiles demanded by Isolandian buyers. Because the domestic quantity supplied is greater than the domestic quantity demanded, Isoland sells textiles to other countries. Thus, Isoland becomes a textile exporter.

Although domestic quantity supplied and domestic quantity demanded differ, the textile market is still in equilibrium because there is now another participant in the market: the rest of the world. One can view the horizontal line at the world price as representing the rest of the world's demand for textiles. This demand curve is perfectly elastic because Isoland, as a small economy, can sell as many textiles as it wants at the world price.

Now consider the gains and losses from opening up trade. Clearly, not everyone benefits. Trade forces the domestic price to rise to the world price. Domestic producers of textiles are better off

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 4 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

because they can now sell textiles at a higher price, but domestic consumers of textiles are worse off because they have to buy textiles at a higher price.

To measure these gains and losses, we look at the changes in consumer and producer surplus. Before trade is allowed, the price of textiles adjusts to balance domestic supply and domestic demand. Consumer surplus, the area between the demand curve and the before-trade price, is area A + B. Producer surplus, the area between the supply curve and the before-trade price, is area C. Total surplus before trade, the sum of consumer and producer surplus, is area A + B + C.

After trade is allowed, the domestic price rises to the world price. Consumer surplus is reduced to area A (the area between the demand curve and the world price). Producer surplus is increased to area B + C + D (the area between the supply curve and the world price). Thus, total surplus with trade is area A + B + C + D.

These welfare calculations show who wins and who loses from trade in an exporting country. Sellers benefit because producer surplus increases by the area B + D. Buyers are worse off because consumer surplus decreases by the area B. Because the gains of sellers exceed the losses of buyers by the area D, total surplus in Isoland increases.

This analysis of an exporting country yields two conclusions:

When a country allows trade and becomes an exporter of a good, domestic producers of the good are better off, and domestic consumers of the good are worse off. Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers.

9-2b The Gains and Losses of an Importing Country Now suppose that the domestic price before trade is above the world price. Once again, after trade is allowed, the domestic price must equal the world price. As Figure 3 shows, the domestic quantity supplied is less than the domestic quantity demanded. The difference between the domestic quantity demanded and the domestic quantity supplied is bought from other countries, and Isoland becomes a textile importer.

In this case, the horizontal line at the world price represents the supply of the rest of the world. This supply curve is perfectly elastic because Isoland is a small economy and, therefore, can buy as many textiles as it wants at the world price.

FIGURE 3 International Trade in an Importing Country Once trade is allowed, the domestic price falls to equal the world price. The supply curve shows the amount

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 5 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

produced domestically, and the demand curve shows the amount consumed domestically. Imports equal the difference between the domestic quantity demanded and the domestic quantity supplied at the world price. Buyers are better off (consumer surplus rises from A to A + B + D), and sellers are worse off (producer surplus falls from B + C to C). Total surplus rises by an amount equal to area D, indicating that trade raises the economic well-being of the country as a whole.

Now consider the gains and losses from trade. Once again, not everyone benefits. When trade forces the domestic price to fall, domestic consumers are better off (they can now buy textiles at a lower price), and domestic producers are worse off (they now have to sell textiles at a lower price). Changes in consumer and producer surplus measure the size of the gains and losses. Before trade, consumer surplus is area A, producer surplus is area B + C, and total surplus is area A + B + C. After trade is allowed, consumer surplus is area A + B + D, producer surplus is area C, and total surplus is area A + B + C + D.

These welfare calculations show who wins and who loses from trade in an importing country. Buyers benefit because consumer surplus increases by the area B + D. Sellers are worse off because producer surplus falls by the area B. The gains of buyers exceed the losses of sellers, and total surplus increases by the area D.

5/11/17, 9(29 AM

Page 6 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

This analysis of an importing country yields two conclusions parallel to those for an exporting country:

When a country allows trade and becomes an importer of a good, domestic consumers of the good are better off, and domestic producers of the good are worse off. Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers.

Having completed our analysis of trade, we can better understand one of the Ten Principles of Economics in Chapter 1: Trade can make everyone better off. If Isoland opens its textile market to international trade, the change creates winners and losers, regardless of whether Isoland ends up exporting or importing textiles. In either case, however, the gains of the winners exceed the losses of the losers, so the winners could compensate the losers and still be better off. In this sense, trade can make everyone better off. But will trade make everyone better off? Probably not. In practice, compensation for the losers from international trade is rare. Without such compensation, opening an economy to international trade is a policy that expands the size of the economic pie, while perhaps leaving some participants in the economy with a smaller slice.

We can now see why the debate over trade policy is often contentious. Whenever a policy creates winners and losers, the stage is set for a political battle. Nations sometimes fail to enjoy the gains from trade because the losers from free trade are better organized than the winners. The losers may turn their cohesiveness into political clout and lobby for trade restrictions such as tariffs or import quotas.

9-2c The Effects of a Tariff The Isolandian economists next consider the effects of a tariff —a tax on imported goods. The economists quickly realize that a tariff on textiles will have no effect if Isoland becomes a textile exporter. If no one in Isoland is interested in importing textiles, a tax on textile imports is irrelevant. The tariff matters only if Isoland becomes a textile importer. Concentrating their attention on this case, the economists compare welfare with and without the tariff.

tariff tax on goods produced abroad and sold domestically

Figure 4 shows the Isolandian market for textiles. Under free trade, the domestic price equals the world price. A tariff raises the price of imported textiles above the world price by the amount of the tariff. Domestic suppliers of textiles, who compete with suppliers of imported textiles, can now sell their textiles for the world price plus the amount of the tariff. Thus, the price of textiles—both imported and domestic—rises by the amount of the tariff and is, therefore, closer to the price that would prevail without trade.

The change in price affects the behavior of domestic buyers and sellers. Because the tariff raises the price of textiles, it reduces the domestic quantity demanded from to and raises the domestic

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 7 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

quantity supplied from to . Thus, the tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade.

Now consider the gains and losses from the tariff. Because the tariff raises the domestic price, domestic sellers are better off, and domestic buyers are worse off. In addition, the government raises revenue. To measure these gains and losses, we look at the changes in consumer surplus, producer surplus, and government revenue. These changes are summarized in the table in Figure 4.

Before the tariff, the domestic price equals the world price. Consumer surplus, the area between the demand curve and the world price, is area A + B + C + D + E + F. Producer surplus, the area between the supply curve and the world price, is area G. Government revenue equals zero. Total surplus, the sum of consumer surplus, producer surplus, and government revenue, is area A + B + C + D + E + F + G.

Once the government imposes a tariff, the domestic price exceeds the world price by the amount of the tariff. Consumer surplus is now area A + B. Producer surplus is area C + G. Government revenue, which is the quantity of after-tariff imports times the size of the tariff, is the area E. Thus, total surplus with the tariff is area A + B + C + E + G.

FIGURE 4 The Effects of a Tariff A tariff reduces the quantity of imports and moves a market closer to the equilibrium that would exist without trade. Total surplus falls by an amount equal to area D + F. These two triangles represent the deadweight loss from the tariff.

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 8 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

To determine the total welfare effects of the tariff, we add the change in consumer surplus (which is negative), the change in producer surplus (positive), and the change in government revenue (positive). We find that total surplus in the market decreases by the area D + F. This fall in total surplus is called the deadweight loss of the tariff.

A tariff causes a deadweight loss because a tariff is a type of tax. Like most taxes, it distorts incentives and pushes the allocation of scarce resources away from the optimum. In this case, we can identify two effects. First, when the tariff raises the domestic price of textiles above the world price, it encourages domestic producers to increase production from to . Even though the cost of making these incremental units exceeds the cost of buying them at the world price, the tariff makes it profitable for domestic producers to manufacture them nonetheless. Second, when the tariff raises the price that domestic textile consumers have to pay, it encourages them to reduce consumption of textiles from to . Even though domestic consumers value these incremental units at more than the world price, the tariff induces them to cut back their purchases. Area D represents the deadweight loss from the overproduction of textiles, and area F represents the deadweight loss from the underconsumption of textiles. The total deadweight loss of the tariff is the sum of these two triangles.

5/11/17, 9(29 AM

Page 9 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

B

FYI Import Quotas: Another Way to Restrict Trade

eyond tariffs, another way that nations sometimes restrict international trade is by putting limits on how much of a good can be imported. In this book, we will not analyze such a policy,

other than to point out the conclusion: Import quotas are much like tariffs. Both tariffs and import quotas reduce the quantity of imports, raise the domestic price of the good, decrease the welfare of domestic consumers, increase the welfare of domestic producers, and cause deadweight losses.

There is only one difference between these two types of trade restriction: A tariff raises revenue for the government, whereas an import quota creates surplus for those who obtain the licenses to import. The profit for the holder of an import license is the difference between the domestic price (at which she sells the imported good) and the world price (at which she buys it).

Tariffs and import quotas are even more similar if the government charges a fee for the import licenses. Suppose the government sets the license fee equal to the difference between the domestic price and the world price. In this case, all the profit of license holders is paid to the government in license fees, and the import quota works exactly like a tariff. Consumer surplus, producer surplus, and government revenue are precisely the same under the two policies.

In practice, however, countries that restrict trade with import quotas rarely do so by selling the import licenses. For example, the U.S. government has at times pressured Japan to “voluntarily” limit the sale of Japanese cars in the United States. In this case, the Japanese government allocates the import licenses to Japanese firms, and the surplus from these licenses accrues to those firms. From the standpoint of U.S. welfare, this kind of import quota is worse than a U.S. tariff on imported cars. Both a tariff and an import quota raise prices, restrict trade, and cause deadweight losses, but at least the tariff produces revenue for the U.S. government rather than profit for foreign producers.

9-2d The Lessons for Trade Policy The team of Isolandian economists can now write to the new president:

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 10 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

Dear Madam President, You asked us three questions about opening up trade. After much hard work, we have the answers. Question: If the government allows Isolandians to import and export textiles, what will happen to the price of textiles and the quantity of textiles sold in the domestic textile market? Answer: Once trade is allowed, the Isolandian price of textiles will be driven to equal the price prevailing around the world.

If the world price is now higher than the Isolandian price, our price will rise. The higher price will reduce the amount of textiles Isolandians consume and raise the amount of textiles that Isolandians produce. Isoland will, therefore, become a textile exporter. This occurs because, in this case, Isoland has a comparative advantage in producing textiles.

Conversely, if the world price is now lower than the Isolandian price, our price will fall. The lower price will raise the amount of textiles that Isolandians consume and lower the amount of textiles that Isolandians produce. Isoland will, therefore, become a textile importer. This occurs because, in this case, other countries have a comparative advantage in producing textiles. Question: Who will gain from free trade in textiles and who will lose, and will the gains exceed the losses? Answer: The answer depends on whether the price rises or falls when trade is allowed. If the price rises, producers of textiles gain, and consumers of textiles lose. If the price falls, consumers gain, and producers lose. In both cases, the gains are larger than the losses. Thus, free trade raises the total welfare of Isolandians. Question: Should a tariff be part of the new trade policy? Answer: A tariff has an impact only if Isoland becomes a textile importer. In this case, a tariff moves the economy closer to the no-trade equilibrium and, like most taxes, has deadweight losses. A tariff improves the welfare of domestic producers and raises revenue for the government, but these gains are more than offset by the losses suffered by consumers. The best policy, from the standpoint of economic efficiency, would be to allow trade without a tariff.

We hope you find these answers helpful as you decide on your new policy. Your faithful servants,

Isolandian economics team

9-2e Other Benefits of International Trade The conclusions of the Isolandian economics team are based on the standard analysis of international trade. Their analysis uses the most fundamental tools in the economist's toolbox: supply, demand, and producer and consumer surplus. It shows that there are winners and losers when a nation opens itself

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 11 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

up to trade, but the gains to the winners exceed the losses of the losers. The case for free trade can be made even stronger, however, because there are several other

economic benefits of trade beyond those emphasized in the standard analysis. Here, in a nutshell, are some of these other benefits:

Increased variety of goods. Goods produced in different countries are not exactly the same. German beer, for instance, is not the same as American beer. Free trade gives consumers in all countries greater variety from which to choose. Lower costs through economies of scale. Some goods can be produced at low cost only if they are produced in large quantities—a phenomenon called economies of scale. A firm in a small country cannot take full advantage of economies of scale if it can sell only in a small domestic market. Free trade gives firms access to larger world markets and allows them to realize economies of scale more fully. Increased competition. A company shielded from foreign competitors is more likely to have market power, which in turn gives it the ability to raise prices above competitive levels. This is a type of market failure. Opening up trade fosters competition and gives the invisible hand a better chance to work its magic.

Enhanced flow of ideas. The transfer of technological advances around the world is often thought to be linked to the trading of the goods that embody those advances. The best way for a poor agricultural nation to learn about the computer revolution, for instance, is to buy some computers from abroad rather than trying to make them domestically.

IN THE NEWS Threats to Free Trade

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

5/11/17, 9(29 AM

Page 12 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

W

In 2012, as the United States and many other nations around the world were slowly recovering from a deep recession, trade restrictions proved an irresistible temptation to many policymakers. The Return of the Protectionist Illusion By Douglas A. Irwin

hen the Great Depression struck in the early 1930s, countries imposed high tariffs, import quotas and foreign-exchange controls in the false hope that they might help revive their

economies. Instead, these beggar-thy-neighbor policies led to a collapse in world trade. Today the threat of protectionism once again looms across the world.

In order to prop up the peso, Argentina is rationing foreign exchange to sharply limit spending on imports, prompting foreign retaliation. Brazil has been cracking down on automobile imports from Argentina and Mexico. A steady stream of new antidumping duties creates additional obstacles to trade.

Export restrictions have also interrupted trade flows: Indonesia and nickel ore, China and rare- earth minerals, Tanzania and maize. And subtle product regulations are increasingly invoked to block imports. Russia recently banned imports of live animals from the European Union, ostensibly for health and safety reasons, prompting vigorous objections from Brussels.

In addition to these overt measures, there are worrisome proposals on the horizon. The EU is considering a “Buy European” initiative for public procurement that would mimic, and perhaps go well beyond, “Buy American” provisions in U.S. law. These laws give preferences for domestic suppliers in government contracts, limiting trade and raising prices that taxpayers pay for government services. India is considering mandating preferences for purchases of information and communications-technology equipment, not just for government entities but for private firms, as well.

Pascal Lamy, director general of the World Trade Organization (WTO), says these and other measures restricting or potentially restricting trade are “now a matter of serious concern.” EU Trade Commissioner Karel De Gucht is also worried by what he characterizes as “the sharp rise in trade- restrictive measures introduced over the last eight months.”

G-20 leaders at the recent summit in Los Cabos, Mexico, claimed they too were “deeply concerned about rising instances of protectionism around the world,” and reaffirmed their “standstill commitment” to avoid imposing new trade restrictions. They pledged to “roll back any new

5/11/17, 9(29 AM

Page 13 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

protectionist measure that may have arisen, including new export restrictions and WTO-inconsistent measures to stimulate exports.”

Talk is cheap. Global Trade Alert, a monitoring service run by Simon Evenett at the University of St. Gallen, Switzerland, points out that the G-20 countries themselves have been most responsible for the protectionist creep. Many trade measures enacted by G-20 members exploit loopholes in WTO rules.

Unfortunately, President Obama has provided no leadership in trying to keep world markets open for trade. Out of fear of offending labor unions and other domestic constituencies, his administration long delayed submitting free trade agreements with Korea, Colombia and Panama for congressional approval. Instead of seeking to reinvigorate the languishing Doha round of trade negotiations at the WTO, it has been almost completely passive and allowed world-trade policies to drift.

Congress has also done little to help. Senate Republicans and Democrats teamed up late last month to maintain import restrictions for the sugar industry, defeating an amendment from Sen. Jeanne Shaheen (D., N.H.) that would have gradually eliminated them. Keeping domestic sugar prices at twice the world level helps a few sugar-cane and beet farmers at the expense of consumers and taxpayers, while leading to job losses in sugar-using industries, such as candy and confectionary manufacturing….

Any serious march backward toward protectionism would constitute a major failure of economic policy. Experience has shown that, once imposed, trade restrictions are very difficult to remove because vested interests then have a stake in perpetuating them. Protectionism also breeds foreign retaliation, making barriers doubly difficult to unwind. Now is no time to entertain dangerous illusions.

Mr. Irwin is professor of economics at Dartmouth College and author of Trade Policy Disaster: Lessons from the 1930s (MIT Press, 2012).

Source: Reprinted with permission of The Wall Street Journal, Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

Thus, free international trade increases variety for consumers, allows firms to take advantage of economies of scale, makes markets more competitive, and facilitates the spread of technology. If the Isolandian economists also took these effects into account, their advice to their president would be even more forceful.

Quick Quiz Draw a supply-and-demand diagram for wool suits in the country of Autarka. When trade is allowed, the price of a suit falls from 3 to 2 ounces of gold. In your diagram, show the change in consumer surplus, the change in producer surplus, and the change in total surplus. How would a tariff on suit imports alter these effects?

9-3 The Arguments for Restricting Trade The letter from the economics team starts to persuade the new president of Isoland to consider allowing trade in textiles. She notes that the domestic price is now high compared to the world price. Free trade would, therefore, cause the price of textiles to fall and hurt domestic textile producers.

5/11/17, 9(29 AM

Page 14 of 14https://jigsaw.vitalsource.com/api/v0/books/9781305892811/print?from=173&to=181

Before implementing the new policy, she asks Isolandian textile companies to comment on the economists' advice.

Not surprisingly, the textile companies oppose free trade in textiles. They believe that the government should protect the domestic textile industry from foreign competition. Let's consider some of the arguments they might give to support their position and how the economics team would respond.

“You like protectionism as a ‘working man.’ How about as a consumer?”

IN THE NEWS Should the Winners from Free Trade Compensate the Losers?

PRINTED BY: [email protected]. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.