Explain whether and why you would expect each of the following groups (a. through g.) to gain or lose from trade with standard or perfect competition, monopolistic competition, and external scale economies.a. A country that exports the productb. Producers in a country that exports the productc. Consumers in a country that exports the productd. A country that imports the producte. Import-competing producersf. Consumers in a country that imports the productg. The world as a whole

Question

What will be an ideal response?

Answer 1

POSSIBLE RESPONSE:

a. Under all three forms of competition, an exporting country, in general, gains because there is a net gain in surplus for the country.

b. Under standard competition and external scale economies producing firms in an exporting country gain. Under monopolistic competition producers that export might gain or lose, depending upon the competition they face from foreign producers, including the loss of some domestic buyers who shift to buying foreign varieties.

c. Consumers in an exporting country lose in the case of standard competition as the price of the exportable product increases in the domestic market. However, in the case of monopolistic competition and external economies they gain as the price declines and consumption quantity increases.
 
d. There is a net increase in economic welfare in the importing country under all the three situations. The increase in consumer surplus usually exceeds the decline in producer surplus under the three situations.

e. Import-competing producers lose in the cases of both standard competition and external scale economies since they lose a significant amount of their surplus. The effect is ambiguous in the case of monopolistic competition, because import-competing producers may also be able to export to foreign buyers. Their gain from selling to foreign customers might be larger or smaller compared to their losses to foreign competitors in the domestic market. 

f. Consumers in the importing country gain for all these three kinds of trade as they can consume more goods at lower prices. 

g. Global production can be located to be more cost-efficient with free trade, for all three kinds of trade. The gains to some groups are larger than the losses to other groups. Therefore, the world as a whole usually gains from trade under all three situations.