What this lesson teaches
I can weigh the benefits and costs of free trade and open flows for consumers, producers and governments.
Syllabus 9570, 3.3.1(c). Globalisation, International Trade and Economic Co-operation: Benefits and costs of free trade and flows of capital and labour on:; Consumers - Prices, choice and variety of goods and services; Producers - Size of markets, degree of competition, cost of production and innovation; Government - Macroeconomic objectives (and policy choice)
Make a guess
Cheap imported appliances flood the market. Does every household gain?
- No. Some lose jobs in competing factories.
- No. Imports hurt local households by sending money abroad.
- Yes. Each household pays less, so each one gains.
Show the answer
No. Some lose jobs in competing factories.
All households pay less for appliances, but workers in import-competing industries may lose income. The gains are real but uneven.
Trade gives consumers lower prices, more choice and better quality, but some also lose jobs or income.
Imports from lower-cost producers lower prices, so consumers' real incomes rise.
Trade widens choice: Singapore consumers can buy food, cars and electronics from all over the world.
Foreign competition pushes local firms to improve quality and keep prices down.
But consumers are also workers. Some lose jobs or income when imports replace local production, so the gains are not shared evenly.
- Gains
- Lower prices, more choice, better quality.
- Costs
- Job losses in import-competing industries.
Worked example: Cheaper goods, different households
Imported household appliances become cheaper. One household member loses overtime at a local factory that competes with the imports. Another household works for a growing exporter.
- All households pay less for appliances.
- The factory worker's household loses income.
- The exporter's household may gain from higher wages.
- The overall gains are real, but they are shared unevenly.
Watch out for this
Everyone gains equally from trade.
Consumers gain on average, but workers in industries that compete with imports can lose.
Check your understanding
How does trade usually benefit consumers?
- Higher prices for imported goods.
- Guaranteed jobs in local industries.
- Lower prices and more choice.
Show the answer
Lower prices and more choice.
Right. Imports from lower-cost producers widen choice and cut prices.