Question

“Once we recognize that product differentiation is the basis for much international trade, there are likely to be more winners and fewer losers in a country when the country shifts from no trade to free trade.” There may be several reasons why this statement is true. What are the reasons? Explain each briefly.

AND

You are an adviser to the Indian government. Until now, government policy in India has been to severely limit imports into India, resulting also in a low level of Indian exports. The government is considering a policy shift toward much freer trade.

1. What are the three strongest arguments that you can offer to the Indian government about why the policy shift to freer trade is desirable for India?
2. Which groups in India will be supporters of the policy shift toward freer trade? Which groups will be the opponents?

Answer 1

THREE SUPPORTIVE POINTS IN FAVOR OF THE POLICY TO MAKE THE ECONOMY OPEN TRADE-

AVAILABILITY OF EFFICIENT MACHINERY AND EQUIPMENT- with the introduction of the policy of the open economy the innovative manner of mechanism of production with the help of hi tech machinery can be imported which can leads to tend the ultimate efficiency and production in the economy.

FLOW OF KNOWLEDGE AND KNOW HOW - in an open economy not only goods but services like medical services engineering services can be rendered and availed within the two countries which are generally specified by WTO.

OPTIMUM UTILIZATION OF AVAILABLE RESOURCES- sometime a country couldn't make the efficient use of resources due to lack of specialization and unskilled labor , but with an introduction of the open trade policy different hi tech machines and able and skilled labor services can be availed across the world to make the efficient use of the resources.

THE SUPPORTER OF THE FREE TRADE POLICY-

AUTOMOBILE INDUSTRIES - due to availability of innovative and different ideas the automobile sectors would welcome the open economy policy.

HEALTH AND PHARMACY SECTORS- health and pharmacy sectors would surely welcome this policy to combat with the new challenges concerned with medical sectors. COVID-19 is a major example where each and every country is trying to get a vaccination .

THE OPPONENT OF FREE TRADE POLICY-

1. courier service provider
2. whole sellers concerned with various goods and services
3. local market operators and small scale producers

(because they won't be able to compete with the global level producer and won't be able to achieve the economy of scale which a large scale producer always avails.)