1. The efficiency case made for free trade is that as trade distortions such as tariffs aredismantled and removedA) government tariff revenue will decrease, and therefore national economic welfare willdecrease.B) government tariff revenue will decrease, and therefore national economic welfare willincrease.C) deadweight losses for producers and consumers will decrease, hence increasing nationaleconomic welfare.D) deadweight losses for producers and consumers will decrease, hence decreasing nationaleconomic welfare.E) government tariff revenue will increase, hence increasing national economic welfare.
Question
- The efficiency case made for free trade is that as trade distortions such as tariffs aredismantled and removedA) government tariff revenue will decrease, and therefore national economic welfare willdecrease.B) government tariff revenue will decrease, and therefore national economic welfare willincrease.C) deadweight losses for producers and consumers will decrease, hence increasing nationaleconomic welfare.D) deadweight losses for producers and consumers will decrease, hence decreasing nationaleconomic welfare.E) government tariff revenue will increase, hence increasing national economic welfare.
Solution
The correct answer is C) deadweight losses for producers and consumers will decrease, hence increasing national economic welfare.
Here's why:
Free trade allows for the unrestricted import and export of goods and services between two or more countries. Trade distortions such as tariffs increase the cost of imported goods and services, making them less attractive to consumers and reducing the quantity traded. This creates a deadweight loss, which is a loss of economic efficiency when the equilibrium outcome is not achieved.
When these distortions are removed, goods and services can be produced by the country that can do so most efficiently, and then traded. This increases the total quantity of goods and services available to consumers and allows them to access these at lower prices.
As a result, the deadweight losses for producers and consumers decrease, which increases national economic welfare. This is because resources are being used more efficiently, and consumers are getting more value for their money.
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