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

Question

At the same time, because of the importation of relatively cheaper foreign vegetables, 150 million consumers save $2 per year on their grocery bills. 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 outweigh the costs in this simple example? d. Which group is most likely to become politically involved over the issue of removing the tariffs, the farm workers or the consumers? Why?

Answer 1

a. The total income lost by farm workers is 1,000 × $20,000 = $20,000,000.
b. The total saving by all consumers is 150,000,000 × $2 = $300,000,000.
c. The consumer savings is much larger than the lost income, so the benefits of free trade outweigh the costs.
d. The farm workers are more likely to become involved, because their individual loss is much greater than an individual consumer's gain.