Suppose that elimination of tariffs on agricultural products means that 1,000 fa

Question

Suppose that elimination of tariffs on agricultural products means that 1,000 farm workers lose jobs that pay an average of $20,000 per year. At the same time, because of the imporation of relatively cheaper foreign vegetables, 150 million consumers save $2 per year on their grocery bill.

A) What is the total income lost by farm workers because of the free trade?
B) What is the total dollar amount saved by all consumers combined?
C) Which is greater, the lost income or the consumer savings? Do the benefits of free trade out-weigh the costs in this simple example?
D) Which group is most likely to become politically involved over the issue of removing the tariff, the farm workers or the consumers? Why?

Explanation / Answer

a) 1000 * 20000 = 20,000,000. This is the total income lost by farm workers b) 150000000 * 2 = 300,000,000. This is the total amount saved by all consumers c) The consumer savings, the benefits of free trade outweigh the costs d) the farm workers are more likely to become involved. They are fewer, but the impact on each of them is much larger (20,000 per year vs $2 per year). Additionally, it is a policy change that negatively affects their well-being. If the change is not made, consumers are not any worse off than they were before, but the farm workers are and are more likely to become involved because of this.

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