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A-Level Economics · Free trade at the world price (imports) diagram question

EVALUATION: what is the strongest cost of opening this market to imports?

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The diagram

The answer

Domestic producers who have lost their comparative advantage shed workers — structural unemployment, concentrated in one region. The China-shock argument: cheap imports wipe out the domestic industry. UK coal in the 1980s — roughly £300 a tonne at home against about £50 imported, and around 100,000 miners lost their jobs. Every con of trade is a pro of protectionism. Cheap imports can destroy a domestic industry, and the unemployment is STRUCTURAL: a 55-year-old miner is geographically and occupationally immobile. UK coal in the 1980s is the case — about £300 a tonne domestic against roughly £50 imported, around 100,000 miners out of work. Note what the diagram still says, though: the winners gain more than the losers lose, so in principle the government can tax the winners and compensate the losers.

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This is one of 6 questions on the free trade at the world price (imports) diagram — every corner lettered, every wrong answer diagnosed.

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