suppose Belgium produces only two goods, chocolate and lace. If Belgium has a comparative advantage in lace, a move toward free trade will
a. benefit chocolate workers, harm lace workers in the short run, but benefit the nation as a whole.
b. harm chocolate workers in the short run, benefit lace workers, but benefit the nation as a whole
c. harm chocolate workers in the short run, harm lace workers, but benefit the nation as a whole
D. benefit chocolate workers, harm lace workers in the short run, but harm the nation as a whole.
Is the answer: D
No, the answer is not D. The correct answer is a) benefit chocolate workers, harm lace workers in the short run, but benefit the nation as a whole.
To understand why, let's first define comparative advantage. Comparative advantage is the ability of a country or individual to produce a particular good or service at a lower opportunity cost than others. In this case, Belgium has a comparative advantage in lace production, meaning it can produce lace at a lower opportunity cost compared to other countries.
When a country moves towards free trade, it opens up its markets to international trade and reduces barriers like tariffs or quotas. This allows Belgium to export more of the goods it has a comparative advantage in (lace) and import goods it has a higher opportunity cost for (chocolate).
As a result, the demand for Belgian lace will increase in the international market, benefiting lace workers in the long run. However, in the short run, there may be some negative effects for lace workers, such as job displacement or temporary adjustments as the industry adapts to increased competition. On the other hand, chocolate workers may benefit from reduced competition in the domestic market, leading to increased demand and potentially higher wages.
Overall, the nation as a whole benefits from free trade as it allows for specialization based on comparative advantage, leading to increased efficiency and economic growth.