Question

multiple choice 2 points
smith argues that american producers cannot compete with foreign producers because wages are lower in foreign countries than in the united states. smith is
making the mistake of believing that productivity is higher in foreign countries than in the united states.
advancing the foreign export subsidies argument for protectionism.
making the mistake of believing that high wages mean high costs.
advancing the antidumping argument for protectionism.

Explanation:

Analyze the argument

The question describes a scenario where Smith argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States. This is a classic protectionist argument often referred to as the "cheap foreign labor" argument.

Evaluate the economic fallacy

In international trade theory, particularly when studying Trade Restrictions Arguments, economists point out that high wages do not automatically translate to high production costs. Wages are fundamentally tied to labor productivity. If American workers are highly productive due to better technology, capital, and education, their unit labor cost can be lower than or equal to that of low-wage foreign workers. Therefore, assuming that low foreign wages automatically make foreign producers more competitive is a common economic fallacy.

Match with the options

Let's evaluate the given choices:

• Option 1: "making the mistake of believing that productivity is higher in foreign countries than in the United States." This is incorrect because Smith's argument is based on wage differences, not an assumption about higher foreign productivity.
• Option 2: "advancing the foreign export subsidies argument for protectionism." This is incorrect because the argument is explicitly about wages, not government subsidies.
• Option 3: "making the mistake of believing that high wages mean high costs." This is correct. High wages reflect high productivity, so high-wage countries can still compete effectively because their cost per unit of output remains competitive.
• Option 4: "advancing the antidumping argument for protectionism." This is incorrect because dumping refers to selling goods below cost or home-market prices, which is not the focus of Smith's wage-based argument.

Answer:

• (A) making the mistake of believing that productivity is higher in foreign countries than in the United States.
• (B) advancing the foreign export subsidies argument for protectionism.
• (C) making the mistake of believing that high wages mean high costs. (Correct answer)
• (D) advancing the antidumping argument for protectionism.