Principles of Economics- Mankiw (5th) 187

Principles of Economics- Mankiw (5th) 187 - CHAPTER 9 A P P...

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CHAPTER 9 APPLICATION: INTERNATIONAL TRADE 193 Not surprisingly, the steel companies are opposed to free trade in steel. They believe that the government should protect the domestic steel industry from for- eign competition. Let’s consider some of the arguments they might give to support their position and how the economics team would respond. THE JOBS ARGUMENT Opponents of free trade often argue that trade with other countries destroys domestic jobs. In our example, free trade in steel would cause the price of steel to fall, reducing the quantity of steel produced in Isoland and thus reducing employ- ment in the Isolandian steel industry. Some Isolandian steelworkers would lose their jobs. Yet free trade creates jobs at the same time that it destroys them. When Iso- landians buy steel from other countries, those countries obtain the resources to buy other goods from Isoland. Isolandian workers would move from the steel in- dustry to those industries in which Isoland has a comparative advantage. Al-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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