Please answer ALL the questions below! Circle the right expression in the parentheses. Q1. Free trade...

Please answer ALL the questions below!

Circle the right expression in the parentheses.

Q1. Free trade as against trade policy can be justified with several reasons. Various forms of trade policy (a. always / b. sometimes) generate welfare loss to the economy, so that free trade is (a. always/ b. usually/ c. sometimes) more efficient than under trade policy. Optimal tariff argument goes (a. along with/ b. against) free trade where the terms of trade (a. can/ b. cannot) dominate (a. welfare gain/ b. welfare loss) of import tariffs in a (a. large/ b. small) country. Also, (a. perfect/ b. imperfect) capital or labor market can justify protection of domestic producers when the welfare loss is (a. larger than / b. smaller than/ c. as large as) their social benefit. These market failures are (a. generally/ b. hardly) easy to identify.

Q2. Free trade usually benefits a (a. large/ b. small) number of consumers and hurt a (a. large/ b. small) number of import sector producers. While the producers’ gain due to trade policy is (a. collectively, b. individually) small but (a. collectively/ b. individually) large, the consumers’ cost is (a. collectively, b. individually) small but (a. collectively/ b. individually) large, so that consumers have (a. strong/ b. weak) incentive to create a political pressure group.

Q3. Domestic politics tends to (a. encourage/ b. discourage) free trade considering (a. economic efficiency/ b. income distribution), while international negotiation helps tariff reduction through giving domestic (a. exporters/ b. importers/ c. consumers) a direct stake and helps governments adopting (a. coordinated/ b. uncoordinated) trade policies.

Q4. Under GATT/WTO overall reductions in tariffs have been realized through (a. bilateral/ b. multilateral) negotiation. Recently, preferential trade agreements are negotiated among groups of countries, which are (a. out of/ b. within) the WTO rule, though (a. against/ b. in harmony with) the non-discrimination principle. These agreements have (a. always/ b. sometimes) ambiguous effects on economic welfare. If they replace domestic production by low cost import goods from other member economies, the country will (a. benefit/ b. lose), but, if it replaces imports from non-member economies with high cost imports from other members, the country will (a. benefit/ b. lose).

Expert Solution

Free trade as against trade policy can be justified with several reasons.

Q1. Various forms of trade policy (always) generate welfare loss to the economy, so that free trade is (usually) more efficient than under trade policy. Optimal tariff argument goes (against) free trade where the terms of trade (can) dominate (welfare gain) of import tariffs in a (large) country. Also, (imperfect) capital or labor market can justify protection of domestic producers when the welfare loss is (larger than) their social benefit. These market failures are (generally) easy to identify.

Q2. Free trade usually benefits a (large) number of consumers and hurt a (small) number of import sector producers. While the producers’ gain due to trade policy is (individually) small but (collectively) large, the consumers’ cost is (individually) small but (collectively) large, so that consumers have (strong) incentive to create a political pressure group.

Q3. Domestic politics tends to (discourage) free trade considering (economic efficiency), while international negotiation helps tariff reduction through giving domestic (exporters) a direct stake and helps governments adopting (coordinated) trade policies.

Q4. Under GATT/WTO overall reductions in tariffs have been realized through (multilateral) negotiation. Recently, preferential trade agreements are negotiated among groups of countries, which are (within) the WTO rule, though (in harmony with) the non-discrimination principle. These agreements have (sometimes) ambiguous effects on economic welfare. If they replace domestic production by low cost import goods from other member economies, the country will (benefit), but, if it replaces imports from non-member economies with high cost imports from other members, the country will (lose).

Rahul Sunny answered 2 years ago

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