If Adjustment Costs Associated with Removing Trade Restrictions Are High

question 35

Multiple Choice

If adjustment costs associated with removing trade restrictions are high, then

• A)consumers will end up worse off because government payments to workers who lost their jobs will increase.
• B)the benefits of free trade can be used to compensate workers who lost their jobs.
• C)the benefits of free trade will be negative.
• D)there are no benefits of free trade.
• E)None of these

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Definitions:

Excess Capacity

The situation where a firm produces less than its total output capacity, often due to lack of demand.

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, allowing for some degree of market power and price setting.

Long-Run Equilibrium

A state in which all inputs can be adjusted by firms, market supply equals demand, and there is no incentive for economic actors to alter their behavior.

Excess Capacity

The condition where a business produces less than the maximum amount possible, often leading to inefficiency.