Protectionism - sector do rise following a move to free...

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Protectionism From Last Time Firms that lose profits due to imports may indeed shut down. Imperfect competition is a generic term encompassing monopoly, monopolistic competition, and oligopoly Exporters gain from trade while import-competing firms lose profits. So, those hurt by imports often seek trade protection. Trade, whether with perfect competition or economies of scale, benefits the nation as a whole. The impact on particular groups differs under the 3 cases. The important thing about trade with external economies is that an expansion of output due, say, to the opening of an export market, lowers average costs. This, in turn, lowers the price. Consumers in both the exporting and importing country gain from the lower price. In the short run, the wages, interest, rent, and profits paid to the resources in the export
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Unformatted text preview: sector do rise following a move to free trade. The payments to factors in the import-competing sector fall in the short run. In the long run, the payments to factors of production used intensively in the export sector rise and payments to the factors used intensively in the import-competing sector fall. This is the Stolper-Samuelson theorem. Total demand is equal to home demand, the demand of domestic consumers, plus foreign demand, demand from foreign consumers. The assumption of free entry drives economic profits for monopolistic competitors to zero. As long as there are economic profits available, firms will enter the market and steal existing firms' customers....
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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