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Principles of Economics- Mankiw (5th) 188

Principles of Economics- Mankiw (5th) 188 - 194 PA R T T H...

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194 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE As Chapter 3 explains, however, the gains from trade are based on comparative advantage, not absolute advantage. Even if one country is better than another country at producing everything, each country can still gain from trading with the other. Workers in each country will eventually find jobs in the industry in which that country has a comparative advantage. THE NATIONAL-SECURITY ARGUMENT When an industry is threatened with competition from other countries, opponents of free trade often argue that the industry is vital for national security. In our ex- ample, Isolandian steel companies might point out that steel is used to make guns and tanks. Free trade would allow Isoland to become dependent on foreign coun- tries to supply steel. If a war later broke out, Isoland might be unable to produce enough steel and weapons to defend itself. Economists acknowledge that protecting key industries may be appropriate when there are legitimate concerns over national security. Yet they fear that this ar-
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