Suppose that elimination of tariffs on agricultural products means that 1,000 farm workers lose jobs that pay an average of 20,000 per year.
At the same time, because of the importation of relatively cheaper foreign vegetables, 150 million consumers save 2 per year on their grocery bills. a. What is the total income lost by farm workers because of the free trade? b. What is the total dollar amount saved by all consumers combined? c. Which is greater, the lost income or the consumer savings? Do the benefits of free trade outweigh the costs in this simple example? d. Which group is most likely to become politically involved over the issue of removing the tariffs, the farm workers or the consumers? Why?
Question 2
Which of the following statements is true of optimization?
A) Optimization analysis only relates to the financial budget of an economic agent.
B) Individuals who optimize do not consider costs when choosing the most feasible alternative.
C) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits.
D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have.
Extent of agricultural activity across the planet (data from Foley et al. 2005).
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