International trade tends to cause welfare losses to at least some groups in a country
|a. The less mobile the country’s resources|
b. The more mobile the country’s resources
c. The lower the country’s initial living standard
d. The higher the country’s initial living standard
The Correct Answer Is:
a. The less mobile the country’s resources
Impact of International Trade on Welfare: Resource Mobility
International trade has both benefits and costs, affecting different groups within a country in various ways. Among the provided options, the correct answer is “a. The less mobile the country’s resources.”
This is because less mobile resources are less adaptable to changes brought about by international trade, potentially leading to welfare losses for certain groups.
In this discussion, we will explore why the less mobility of a country’s resources is the correct answer and why the other options are not suitable in this context.
Explanation of the Correct Answer:
a. The Less Mobile the Country’s Resources
When a country engages in international trade, it may experience shifts in its production and consumption patterns. Some industries may expand due to increased export opportunities, while others may contract as they face competition from imported goods.
The impact of these changes on specific groups within a country depends on the mobility of resources.
Less mobile resources refer to factors of production (such as land, labor, and capital) that are not easily redeployed from one industry or region to another. For example, specialized machinery in a declining industry or workers with specific skills that are not easily transferable may be considered less mobile.
When resources are less mobile, they are less able to adapt to the changing demands of international trade. This can lead to disruptions and potential welfare losses for the groups relying heavily on these less mobile resources. For example, workers in declining industries may face difficulties transitioning to new sectors, leading to unemployment or reduced wages.
Explanation of Incorrect Options:
b. The More Mobile the Country’s Resources
This option suggests that countries with more mobile resources would experience welfare losses due to international trade. However, the opposite is true. Countries with more mobile resources are better equipped to adapt to changing market conditions.
Highly skilled and versatile workers, as well as easily transferable capital and technology, allow for smoother transitions between industries, mitigating potential welfare losses.
c. The Lower the Country’s Initial Living Standard
This option implies that countries with lower initial living standards would experience welfare losses from international trade. While it is true that countries with lower initial living standards may face challenges in competing with more developed nations, international trade can actually provide opportunities for economic growth and development.
By engaging in trade, countries can access new markets and technologies, potentially leading to higher living standards.
d. The Higher the Country’s Initial Living Standard
This option suggests that countries with higher initial living standards would face welfare losses from international trade. However, this is not supported by economic theory or empirical evidence.
Countries with higher initial living standards tend to have more diversified economies, better infrastructure, and a skilled workforce, which can enhance their ability to benefit from international trade. While there may be distributional effects within the country, overall welfare gains are more likely in economically advanced nations.
In conclusion, The correct answer, “a. The less mobile the country’s resources,” accurately reflects how the mobility of resources plays a crucial role in determining the impact of international trade on a country’s welfare.
Less mobile resources are more susceptible to disruptions, potentially leading to welfare losses for certain groups. The other options provided do not capture this dynamic and are therefore not the correct answers in this context.