Question

international trade — end of chapter problem
both democratic and republican opponents of nafta have argued that it harms many people in the united states.

identify which domestic industries, firms and workers are likely to be harmed by this free trade agreement.
(\bigcirc) in industries in which the united states has a comparative advantage, domestic firms typically lose market share and therefore domestic workers lose jobs.
(\bigcirc) in industries in which a trading partner has a comparative advantage, domestic firms typically lose market share and therefore domestic workers lose jobs.
(\bigcirc) in industries in which a trading partner has a higher opportunity cost, domestic firms typically gain market share and therefore domestic workers lose jobs.
(\bigcirc) in industries in which the united states has a lower opportunity cost, foreign firms typically gain market share and foreign workers gain jobs.

Explanation:

To determine the correct option, we analyze the concept of comparative advantage. A trading partner with a comparative advantage in an industry can produce goods at a lower opportunity cost. In such industries, domestic firms face competition from more efficient foreign producers, leading to loss of market share and job losses for domestic workers.

• Option 1: In industries where the US has a comparative advantage, domestic firms should gain market share, not lose. So this is incorrect.
• Option 2: If a trading partner has a comparative advantage (lower opportunity cost) in an industry, their goods are more competitive. Domestic firms in these industries lose market share, and workers lose jobs. This matches the concept.
• Option 3: A trading partner with higher opportunity cost means the US has comparative advantage here; domestic firms should gain, and workers should gain jobs (not lose). Incorrect.
• Option 4: If the US has lower opportunity cost (comparative advantage), foreign firms should not gain market share; domestic firms should. Incorrect.

Answer:

B. In industries in which a trading partner has a comparative advantage, domestic firms typically lose market share and therefore domestic workers lose jobs.