Help With Economics Question?

1. imapirat Says

   Should be A
   The new importers would introduce competition to a market that (we assume) is way out of equilibrium, which will cause the first company to get pounded by any new companies until they A) imrpove product B) get rid of some of their cost (usually in forms of layoffs) or C) both
   The consumers, however, will benefit from the new competition as it will breed lower prices and better quality.
   I thought economic wellbeing was classified from both consumers and producers, if the consumers benefited more than the producers lost then the wellbeing would rise, but that would completely depend on the companies prosperity after the initial shock from trade being introduced

2. jerry w Says

   The answer is A.
   If allowing trade means that a specific product is now imported, that means that the domestic (before trade) price was higher than the world price. In short, domestic production is less efficient than what can be produced elsewhere. The fact that imports do come into the country with free trade means that consumers will have lower prices but a higher quantity of software. The domestic producers, however, would be hurt by this additional competition. They would be forced to either become more efficient or go out of business. If they go out of business, they would free up resources to be used for something that can be done more efficiently. Either way, domestic efficiency increases, and economic well-being increases.
   This is the theoretical answer, and the one that will be marked as correct for this question. It doesn’t necessarily take into consideration the overall impact of possible net job losses. More studies need to be done on that issue.

3. ? Says

   I’d say B.
   Residents of Duxembourg who produce software become worse off: Increased competition means lower prices and thus less income for local producers, assuming that the cost of all input goods doesn’t go down as well. (dvd’s, packaging, phone assistance labour, etc.)
   Residents of Duxembourg who buy software become better off: Thanks to the same increased competition that lowered prices, the residents enjoy greater wealth (the same amount of money can purchase a larger amount of goods). This is the short term view since the long term may involve lowered incomes due the the lowered profits in their software sector.
   and the economic well-being of Duxembourg falls: Economic well being is a reference to the Gross Domestic Product of the community. This can be measured different ways, but here I think the main idea would be the combination of Consumption Function, plus spending by the government, investments, and net exports (GDP=C+G+I+NX). Net exports is the total exports MINUS total imports. Since imports are increasing, NET exports will go down. Add all those factors together and the total GDP would have gone down, hence falling economic well-being.

4. Anonymou Says

   B. The residents who produce software become worse off, because the demand for their product falls. Residents who purchase software are better off, because imports will be cheaper so they save money. And overall economic well-being will decrease because their aggregate demand will fall, and they will have a worse balance payments (more will be imported than exported)

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