When a market begins to engage in international trade:
consumers of the imported good may be worse off.
producers in the exporting industry may be better off.
producers in the importing industry may be better off.
consumers of the exported good may be better off.
The correct answer and explanation is:
The correct answer is:
Consumers of the imported good may be worse off.
Explanation:
When a market begins to engage in international trade, several shifts happen in terms of pricing, production, and consumption that can impact different groups in the economy. Here’s an explanation of the given options:
- Consumers of the imported good may be worse off.
- This is correct in certain contexts, especially when there are tariffs, quotas, or other trade barriers involved. If the country imposing tariffs or other barriers on imports does so to protect domestic industries, it can raise the prices of the imported goods, making consumers worse off. The higher prices of the imported goods mean consumers face higher costs for those products, which reduces their consumer surplus. Additionally, if there is reduced competition due to trade restrictions, it could lead to less variety and innovation, further harming consumers.
- Producers in the exporting industry may be better off.
- This is generally true. When a country opens up to international trade, producers in the export industries can access new markets, increasing demand for their goods. This higher demand often allows them to sell their goods at higher prices, improving their profitability. As they sell more to foreign markets, they benefit from economies of scale, reducing their per-unit costs.
- Producers in the importing industry may be better off.
- This statement is generally false. Producers in the importing country (those who sell goods that are now being imported) may face increased competition from foreign producers, which can lead to reduced market share and potentially lower prices for their goods. In the absence of trade barriers, the lower cost of imported goods may push domestic producers out of the market or force them to lower prices, harming their profitability.
- Consumers of the exported good may be better off.
- This is generally not true in the immediate context of international trade. When a country exports a good, the price of that good might rise in the domestic market due to the increased demand from foreign buyers. As a result, domestic consumers may face higher prices for that good. In the long term, if trade leads to increased production efficiency, it could result in lower prices, but this is not a direct result of export activities.
In summary, when a market engages in international trade, the effects on different groups depend on various factors like trade barriers, market competition, and price dynamics. While some consumers may benefit from lower prices and increased variety, others (especially those in the importing country) may be worse off due to higher prices or reduced domestic production.