Question

1. True or False: In a transitional gains trap, both the suppliers of the good and the consumers of the good are worse off because of the initial barriers to entry imposed on the market.   and why?

Answer 1

Dear Student,

Yes it is True that due to transitional gains trap, both the suppliers of the good and the consumers of the good are worse off because of the initial barriers to entry imposed on the market. Following are the main reason behind this initial barriers and impact on supplier as well as consumers

A barrier to trade is a government-imposed restraint on the flow of international goods or services.

Popular myth: Trade barriers are good for the economy. Economic reality: Trade barriers benefit some people—usually the producers of the protected good—but only at even greater expense of others—the consumers.

1) Trade barriers cause a limited choice of products and, therefore, would force customers to pay higher prices and accept inferior quality.

2) Trade barriers generally favor rich countries because these countries tend to set international trade policies and standards.

3) Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, which can be explained by the theory of comparative advantage.

4) Trade barriers are government-induced restrictions on international trade.

Man-made trade barriers come in several forms, including:

• Tariffs
• Non-tariff barriers to trade
• Import licenses
• Export licenses
• Import quotas
• Subsidies
• Voluntary Export Restraints
• Local content requirements
• Embargo
• Currency devaluation
• Trade restriction

Most trade barriers work on the same principle–the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results.

5) Trade barriers are detrimental and decrease overall economic efficiency of both supplier of goods and consumers of the goods.

6) Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players set trade policies, goods, such as agricultural products that developing countries are best at producing, face high barriers. Trade barriers, such as taxes on food imports or subsidies for farmers in developed economies, lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.

Hope I have cleared your doubts about initial trade barriers to entry in the market

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