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Principles of Economics- Mankiw (5th) 192

Principles of Economics- Mankiw (5th) 192 - 198 PA R T T H...

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198 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE they do today if people could consume only those goods and services produced in their own states. The world could similarly benefit from free trade among countries. To better understand economists’ view of trade, let’s continue our parable. Suppose that the country of Isoland ignores the advice of its economics team and decides not to allow free trade in steel. The country remains in the equilibrium without international trade. Then, one day, some Isolandian inventor discovers a new way to make steel at very low cost. The process is quite mysterious, however, and the inventor insists on keeping it a secret. What is odd is that the inventor doesn’t need any workers or iron ore to make steel. The only input he requires is wheat. E CONOMIST J AGDISH B HAGWATI ARGUES that the United States should lower its trade barriers unilaterally. F r e e Tr a d e w i t h o u t Tr e a t i e s B Y J AGDISH B HAGWATI President Clinton and 17 other Asian-
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