Question

2.         Explain the roundabout way to wealth in your own words.

3.         You hear a commentator say: “If you want to know the impact of trade on America, just look at all the formerly prosperous manufacturing towns, with factory closings and economic decline.”    Is this a good way to assess the impacts of trade for the country? Explain.

Answer 1

Ans 2: It is an opposite of the direct way in the sense that, we generally build factories and set up firms to produce a particular commodity say, cars. But in the concept of roundabout way of making cars is to produce other goods and services in order to make cars by trading.

Ans 3: No, this is not a good way to assess the impact of trade on USA. Due to the international trade, the countries can consume those goods which they cannot produce. However it is true that, due to international competition, domestic firms suffers the most and some gets shut down. But we should also analyze the positive impact of trade on the economy, the trade lowers the price level of goods in the market due to international competition, The consumers can consume the goods which their country cannot produce them. With the help of trade, new advanced technology can enter in their domestic market can bring revolutionary changes. The international firms can invest in the domestic country and can set their firms in domestic country which provides employment to domestic residents. In order to check the impact of trade on the economy, we have to see both sides the benefits of trade and costs associated with trade. Generally, the inefficient firms shut down their business due to international trade.