Microeconomics for MBAs 59. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 17 International Trade and Finance 15 Thus the case for free trade is a subtle one. As always special-interest group -entrepreneurs labor organizations consumer groups -- will pursue their individual interests competing for favors and benefits the same way they compete in the marketplace. Yet if all are to be treated equally by government we must make the choice between free trade for all and protection for all. Economists generally choose free trade for all because of its obvious benefits to the nation as a whole. There are some legitimate exceptions to that rule such as the required domestic production of public goods which are discussed below. Yet even trade restrictions necessary for the public good are abused by those who would secure protection for private purposes. Textile Industry Without Tariff Protection Textile Industry With Tariff Protection Automobile industry Without Cell I Real Real Income Income Textile Auto Cell II Real Real Income Income Textile Auto Tariff Protection 20 30 23 25 Automobile Industry With Cell III Real Real Income Income Textile Auto Cell IV Real Real Income Income. Textile Auto Tariff Protection 15 34 17 31 FIGURE Effects of Tariff Protection on Individual Industries Case 2 In this more realistic case the auto industry gains from tariff protection even if both sectors are protected cell IV . The textiles industry s income falls from 20 cell I to 17 cell IV but the auto industry s income rises from 30 cell I to 31 cell IV . Thus the auto industry has no incentive to agree to the elimination of tariffs. Chapter 17 International Trade and Finance 16 The Case for Restricted Trade Proponents of tariffs rarely argue publicly that they will serve private interests raise prices and reduce the availability of goods. Instead they typically advocate tariffs as the most efficient means to accomplishing some national objective. Any private benefits that would accrue to protected industries are generally portrayed as insignificant
