Economists consider the effects of free trade on income distribution to be ________ important than the effects on overall welfare because ________.

Question

BlackTom AI · Accepted Answer

The question asks about economists' view on the distributional effects of free trade compared to its overall welfare effects, and why one aspect is considered more important than the other.
Option A: 'A. less; the effects on income distribution are minor and inconsequential' This claims income distribution effects are minor and thus less important, which contradicts the standard view that distributional concerns are prioritized because there is often no automatic compensation for those harmed, even when overall welfare improves. The premise that distributional effects are minor is generally incorrect in many trade scenarios.
Option B: 'B. more; those who are harmed are not compensated by those who gain' This aligns with the idea that while overall welfare may rise, the gains to some groups do not automatically compensate losses to others, leading to significant distributional concerns. Economists emphasize the lack of automatic compensation and the importance of policies to address losers, reflecting the Harsanyi-Kaldor-Hicks-like intuition that distribution matters even if total welfare improves. This is a plausible and widely taught justification.
Option C: 'C. more; the effects on income distribution are major and consequential' This states the distributional effects are major and consequential, which is close to the truth in many cases, but it overstates the inevitability of major, lasting changes in all contexts. The nuance is that the gains may be large while distributional harms can be substantial, but the phrasing implies every case has major consequences, which isn’t universally guaranteed without context.
Option D: 'D. less; many factors besides trade affect income distribution' This suggests distributional concerns are less important because other factors drive income distribution. While it is true that multiple factors influence distribution, the standard trade theory and policy discussion still treat distributional effects as an important consideration, particularly because trade can alter winners and losers directly, even if other factors matter.
Option E: 'E. less; the wealthy benefit and only the poor lose' This is an overgeneralization that wealthier groups always capture benefits and poorer groups bear all costs. In reality, benefits and losses from trade can be distributed across many different groups in complex ways, and not all rich gain while the poor lose; some may gain and some may lose across both ends of the distribution. The simplistic dichotomy is misleading.

SESS0063_24-25 Test your knowledge

Economists consider the effects of free trade on income distribution to be important than the effects on overall welfare because .

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