Business Finance Homework Help

The gains from specialization and trade are based on comparative advantages, which reflect the relative opportunity costs of production. When countries specialize in producing goods and services for which they have comparative advantages, total production in the global economy rises. Trade advocates argue that this increase in the size of the economic pie can be used to make all trading countries better off through international trade. Economists also use the principle of comparative advantage to advocate free trade among countries as a better policy.

Based on the above summary and the detailed descriptions of the international trade issues in the textbook (Chapter 40) discuss the following questions.

• Does free trade contribute to the improvement of economic well-being? How does trade stimulate long-term economic growth? Explain.
• Who gains and losses from free trade among countries, and how do the gains compare to the losses? Explain using examples.
• Do you think the U.S. export and import of goods and services are based on the principle of a comparative advantage of trade? Explain.
• Why do countries impose trade restrictions on goods and services they import from other countries? What are the pros and cons of trade protectionism?
• What is the impact of free trade on domestic job creation policy? Elaborate with examples.

Do the discussion first with citation and references then do the response each posted below.

Posted 1

Free trade promotes economic growth by allowing countries to specialize in areas where they have more efficient output (McConnell, Brue, & Flynn, 2018). This means that the world economy can have a more efficient allocation of resources, basically you can focus on doing what you’re good at and getting other things from somewhere else who is able to provide it cheaper. Trade also promotes competition and innovation, as new ideas can spread quickly from one country to another (McConnell, Brue, & Flynn, 2018). Focusing on areas of efficiencies gives countries the advantage in those areas, and that will encourage long term growth.

International trade allows countries to specialize, increase productivity, and increase the amount of output to a greater level than they would without (McConnell, Brue, & Flynn, 2018). Jobs will be shifted to industries where that nation has greater exports, and away from industries where they have a great amount of imports. This means that the losers could be in industries that were previously protected from trade. An example of this given by McConnell, Brue, & Flynn (2018) is the US steel industry.

The US has a higher dollar amount of combined imports and exports than any other nation (McConnell, Brue, & Flynn, 2018). They export based on their natural resources and skilled labour and import largely due to unskilled labour costs. These are areas of competitive advantage being taken on both sides, showing that it is based on the principle of comparative advantage.

Tariffs, quotas, and other trade barriers are imposed for several possible reasons. These reasons include to enable greater industrial diversification, protection for young national industry from mature foreign industry, and protection of domestic employment (McConnell, Brue, & Flynn, 2018). The advantages of these barriers are generally from special interest groups involved with a specific industry looking for protection, which ends up causing greater losses for the overall economy (McConnell, Brue, & Flynn, 2018).

Free trade does have an impact on some domestic jobs. Generally, it is low-value services that are being offshored such as call centres and data entry, and the high-value services such as transportation and legal services are being retained and are growing (McConnell, Brue, & Flynn, 2018). When international trade patterns shift impacting domestic workers, they are eligible for a range of money and benefits under the Trade Adjustment Assistance Act.

Posted 2

In theory, free trade does contribute to the improvement of economic well-being due to reduced restrictions both economic and regulatory. Overall, free trade promotes long-term economic growth by creating more efficient use of resources and opportunity for specialization (McConnell et al., 2018). An example is countries which have natural resources and can specialize labor forces in handling and extraction of those resources. They should have at least a localized competitive advantage if all other things are equal.

The main problem with instituting free trade now is that certain countries are much more politically, economically, and technologically advanced than others. For example, the Democratic Republic of the Congo has a massive quantity of natural resources. They would be significantly disadvantaged in selling those resources in comparison to other countries like China or the US for example. This is due to the relative maturity and access to superior technology. True free trade benefits all countries because goods can be relatively priced based on availability and opportunity cost. Therefore, gains and losses should equal out overall. The system is more like bartering in this scenario. A country which is the sole producer of chickens could trade another country who is a sole producer of wool for example. They could use monetary value from the market to make those trades, but they would be relative to each other as well.

Yes, but marginally. The US movement of goods is likely related to comparative advantage of trade as well as some skewing from trading in political value as well. The US for example can export natural gas and oil products because of the large reserves in the country, thus comparative advantage of trade. However, there is also a benefit to countries trading with the US including stability of supply, treaties which protect the country, or other related economic or political value outside of the value of the good or service. It is hard to ignore those other components of value.

Countries want to create favorable political-economic connections with other countries. Trade restrictions can be used as leverage to influence policy of other governments. For example, the trade deal between China and the US was influenced by the tariffs imposed by each side. Cons of trade protectionism include reduction in free trade activities which are known to benefit the global economy and overall economic distress for countries involved. Pros include the immediate and direct impact on citizens within those countries. More domestic jobs might be retained in the short term and thus make people happy. However, the jobs are likely to cause increased price of production and raise prices for the people that needed those jobs. In the long run, it is more likely to hurt the economy for the price of some votes.

As mentioned previously, free trade will shift the domestic job creation policy toward comparatively advantaged industries. The United States is specifically advantaged in education, skilled labor, technological innovation, oil, and farmed products. The job creation policy would largely focus on further subsidizing the strong areas to make even more competitive advantage. Thus, the companies in those industries would grow and jobs could increase.

Posted 3

Yes, free trade improves economic well being by lowering prices, increasing exports, and providing a larger choice of goods to consumers.

Free trade allows countries to specialize in goods where they have a comparative advantage. When they have comparative advantage they have a lower opportunity cost therefore increasing economic welfare for all countries involved.

Yes, I think comparative advantage is the reason we have import and export of goods. If something is more cost effective to make elsewhere it make more sense to make it there than to make it in a way that is more expensive.

Countries impose trade restrictions in order to control the supply and the prices of the goods. “The advantages to trade protectionism include the possibility of a better balance of trade and the protection of emerging domestic industries. Disadvantages include a lack of economic efficiency and lack of choice for customers.” (Grimsley)