Two Arguments
Consumers and Producers
• American Workers Lose from Free Trade
• All of our Jobs are going overseas
SUS
PUS
PW
D
C
DUS
Q1
Q2
Q3
Q4
Lectures in Macroeconomics- Charles W. Upton
Widget Supply and Demand
In fact, some American
US
Workers lose by someSfree
trade measures, but the
gains to consumers
exceed the losses
PW
DUS
Consumers and Producers
Widget Supply and Demand
SUS
PW
DUS
Consumers and Producers
Widget Supply and Demand
PUS
PW
We currently
SUS
impose
a tariff
of T on widget
imports, so that
the US price is
PW+T
DUS
T
Q2
Q3
Consumers and Producers
Consumers and Producers
Widget= Supply
US demand
Q3;
US supply = Q2.
Imports = Q3-Q2
PUS
PW
and Demand
We currently
SUS
impose
a tariff
of T on widget
imports, so that
the US price is
PW+T
DUS
T
Q2
Q3
Consumers and Producers
1
Free Trade
SUS
PUS
PW
DUS
Q1
Q2
Q3
If we permittedFree
free trade, the US
price would fall to
the world price, Pw
PUS
Q4
DUS
Q1
and Losers
SUS
DUS
Q2
Q3
ConsumersWinners
clearly
gain from the
decline in widget
prices
PUS
Q4
clearly loseSUS
from
They
sell
fewer
the loss in widget
widgets at a lower
production
price
DUS
Q2
Q3
andAnd
Losers
producers
clearly loseSUS
from
the loss in widget
production
DUS
Q1
andAnd
Losers
producers
Consumers and Producers
Q4
Q2
Q3
Q4
Consumers and Producers
PW
Q1
Q3
PW
Consumers and Producers
ConsumersWinners
clearly
gain from the
decline in widget
prices
PUS
Q2
Consumers and Producers
PW
Q1
SUS
PW
Consumers and Producers
ConsumersWinners
clearly
gain from the
decline in widget
prices
PUS
Trade
Q4
The Trade-Off
SUS
PUS
PW
DUS
Q1
Q2
Q3
Q4
Consumers and Producers
2
The Trade-Off
This seems to be the
stuff of which
economic arguments
PUSare made: the
benefits to
PW
consumers vs. the
benefits to producers
Q1
Q2
The Trade-Off
SUS
DUS
Q3
This seems Before
to be the
SUS
you get too
stuff of which
excited there is
economic arguments
something you should
PUSare made: the know.
benefits to
PW
consumers vs. the
DUS
benefits to producers
Q4
Q1
Consumers and Producers
The Trade-Off
Q2
Q3
PUS
PUS
PW
Q4
DUS
Q1
PW
Widgets Previously
SUS
Purchased
Loss to Taxpayers
The
from End of Tariff
PUS
B
DUS
Q1
Q2
Q3
Consumers and Producers
Q2
Q3
Q4
Consumers and Producers
Lower Price for
Consumers
A
Q4
SUS
Consumers and Producers
Benefits
from to
Gains
Additional Widgets
Purchased
Q3
The Proof
This seems Before
to be the
SUS
you get too
stuff of which
excited there is
gains to
theshould
economic The
arguments
something
you
PUSare made:
consumers
from free
the know.
tradetoalways offset
benefits
PW
thevs.
losses
consumers
the to the
DUS
producers!
benefits to producers
Q1
Q2
Consumers and Producers
Q4
PW
ProofLoss to Producers
D
SUS
C
DUS
Q1
Q2
Q3
Q4
Consumers and Producers
3
The gainThe
to Proof
consumers is outlined
in brown.
PUS
PW
SUS
PUS
D
C
DUS
Q1
The
The gain
to Proof
It clearly
exceeds the
consumersloss
is outlined
SUS
to producers and
in brown.
the government.
Q2
Q3
Q4
Consumers and Producers
The Intuition
• 100,000,000 Americans consume widgets
• 50,000 Americans make widgets
PW
D
C
DUS
Q1
Q2
Q3
Q4
Consumers and Producers
The Intuition
• 100,000,000 Americans consume widgets
• 50,000 Americans make widgets
• When we move to free trade,
– The average consumer gains $10
– The average worker loses $5,000
Consumers and Producers
The Intuition
Gains to
• 100,000,000 Americans consume
widgets
American
• 50,000 Americans make widgets
consumers:
• When we move to free trade,
– The average consumer gains$1
$10Billion
– The average worker loses $5,000
Consumers and Producers
Consumers and Producers
The Intuition
Gains to
• 100,000,000 Americans consume
widgets
American
• 50,000
Americans
consumers:
Losses
to make widgets
• When
we
move
to
free
trade,
American
– The
average consumer gains$1
$10Billion
workers:
– The average worker loses $5,000
$250 Million
Consumers and Producers
4
The Intuition
Gains to
who
is more
likely
to
• Query:
100,000,000
Americans
consume
widgets
American
protest
and write
their
• 50,000
Americans
consumers:
Losses
to make widgets
congressman?
The
consumer
• When
we move to free trade,
American
The Loss of Jobs
• Thanks to free trade, American widget
makers shut down.
or consumer
the worker?
– The
average
gains$1
$10Billion
workers:
– The average worker loses $5,000
$250 Million
Consumers and Producers
The Loss of Jobs
• Thanks to free trade, American widget
makers shut down.
• People note all the dollars flowing to
Mexico to buy widgets, and claim that
“pretty soon all of our jobs will have gone
to Mexico (or China or India or…)”
Consumers and Producers
The Loss of Jobs
But why do the Mexicans (or
• Thanks to free trade, American widget
Indians
or Chinese) want
makers
shut down.
pictures of George
• People note all the dollars flowing to
Washington?
Atand
some
Mexico to buy widgets,
claimpoint
that
those
dollars
will
be
returned
“pretty soon all of our jobs will
have gone
to purchase
and
to Mexico
(or China orgoods
India or…)”
services in the US
Consumers and Producers
Consumers and Producers
End
©2005 Charles W. Upton.
All rights reserved
Consumers and Producers
5
