Question

Answer the questions below using a few paragraphs.

- Justify why some individuals may be against trade. Identify why either: the Ricardian or Endowment model would explain why individuals might be against trade. Explain how the model works, under what conditions individuals are more likely to lose from trade and under what conditions no individuals would be likely to lose from trade. [You may not refer to the Specific Factors model in your answers]. First assume no taxation or wealth transfers within nations are possible, then explain how your answer would change if governments could transfer wealth between individuals.

Answer 1

why some individuals may be against trade...

ans........

Although free trade i.e no restriction on trade between countries  is beneficial for all the countries taken together , unilateral movement  towards free trade may not be desirable by some individuals or a country as a whole .

This makes some countries to deviate from.free trade by adopting protectionist measures , even when all the other countries have adopted free trade .

These protectionist measures can be infant industry argument , cultural identity ,protection against dumping ,environmental foctors , diversify economy and many others some of which are explained below

1. infant industry argument

it has been frequently used to justify trade protection , specially in the context of developing countries . It can be explained as manufacturing industries in poor countries cannot withstand competition from.more mature based industrialised nations unless they are granted trade protection in their initial stages of development .

But on the other side with no trade protection competition between industries between countries makes them.more efficient . Also regime of discretionary controls like import texes and quotas promote wasteful rent-seeking activities which result in welfare loss.

2. protection against dumping

dumping occures when firms sell their goods at significantly lower prices in export markets than in their domrstic markets , in a bid to capture a larger share of the foreign market .firms in the importing country consider dumping an unfair , predatory practice . By charging a lower price , foreign firms may suffer losses in the short run but eventually they stand to earn monopoly profits in the long run

Therefore firms in the importing country lobby for imposition of antidumpimg duties as protection against dumping .

But there are two problems with use of antidumping as a justification for protection . The first related to the misuse of this argumemt for protection .

Inefficient firms may get protection by successfully bringing antidumping charges against efficient foreign firms . In this case domestic consumers lose out as they would have to pay higher prices .