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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

Macroeconomic definetion
farooq Reply
I need short examples for costumer
we are costumer of this application,
Marshall 's definition
Arun Reply
perfectly competitive firm earn zero economic profit in the long run.is it true or false
Sapna Reply
False...some, in the long run earn normal profit while some zero or negative profit(loss) which forces them out of the market..
what is supply
Sapna Reply
supply is the amount of goods and services that supplies are willing and able to sell at a given price at a particular period of time.
Hey how Sapna...I have the que... I can see supply does with selling;yah that's great... So cost of production is the determinant of supply though;how does it relate to selling yet? The supply definition u just gave is not complete yet... *SUPPLY* DEFINITION HAS TO DO WITH SELLING AND PRODUCING.
what is difference between elastic and inelastic ?
saqlain Reply
what does a supply curve look like?
master Reply
It's the curve that has a positive gradient
you are right mahapa
please explain cob doglas thiory
'cardinal utility implies ordinal utility'.Do you agree?
what is relative price.?
Harpreet Reply
when the price of 2 commodity is compared with each other,the price of one commodity to another one's price is said to be relative price
business organization and industry?
history of monetary policy
Estah Reply
instrument of monetary policy
open market,funding ,bank rate
open market operation,Funding,Bank rate
thanks guys
What is elasticity?
Moses Reply
level or degree of responsiveness of change in quantity as a result of change in price
is the degree of responsiveness of a quatity demand respond to small charge in price
the degree of responsiveness of quantity demanded to a change in price, income or other related commodities
what are the Factor affected elastricity of demand and supply
Kelvin Reply
price of other related goods
Taste. Income.
what is economic ?
Cabdulahi Reply
what is price ceiling and price floor
Mokom Reply
price ceiling is a government deliberate act of imposing a limit on prices of goods n services sold in an economy...price floor is exactly the opposite
both are a form of price control by the government. price ceiling is the subsidy to consumer by setting maximum limit to the price and prducers of good cannot charge a higher price than this price limit which is known as price ceiling
what's the difference between average product and marginal product
Francis Reply
average cost/revenue and marginal cost/revenue
A Washington state district court currently has subject matter jurisdiction over many types of civil cases, if the amount in controversy is $150,000 or less.
Sina Reply

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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