Question

“Does free trade hurt the poor?” Be sure to cite at least two reasons for your opinion.

This question covers 3 skills.

• Explain absolute advantage, comparative advantage, opportunity costs, and gains of trade when a country specializes.
• Evaluate the relationship between the costs of production and comparative advantage.
• Identify barriers to international trade and the benefits of reducing those barriers.

Answer 1

1 No it doesn't nesecarrily hurt because it reduces cost of production and thus prices of goods. Also it often expands market which provides more employment oppurtunities

2 By absolute advantage we mean country can produce more of a good than other country. By comparative advantage we mean country can produce a good at lower oppurtunity cost than other country. By oppurtunity cost we mean the amount of one good given to produce more of other good.

Gains from trade include higher consumer and total surplus due to lower prices, higher efficiency due to lower oppurtunity cost of production, lower expenditure on customs checking and border patrolling etc, increase in market size, greater variety of goods available and so on.

3 lower cost of productoon than rivals means country has comparative advantage

4 tariffs, quota, voluntary export restraints, antidumping duties, subsidies and so on.

All the benefits of trade mentioned above are also benefits of lower trade barriers