Question

congressman smith cites the "jobs argument" when he argues in favor of restrictions on trade; he...

congressman smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can bee produced at lower cost in other countries. the likely flaw in congressman smith's reasoning is that he ignores the fact that

Homework Answers

Answer #1

Congressman Smith was in favor of trade restrictions.

His argument for restriction on trade is that everything is produced at lower cost in other countries and thus trade will only increase imports and there would no increase in the exports of the country.

However, the Congressman is ignoring the opportunity cost of production. It is the opportunity cost of production that provides comparative advantage and which is the basis of trade and provides gains from trade.

So,

Even though other countries can produce goods at lower cost in absolute terms, then also, this country can produce many goods at lower opportunity cost and thus can gain from the trade.

So,

The likely flaw in Congressman Smith's reasoning is that he ignores the fact that the gains from trade are based on the comparative advantage.

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