Trade, Distortions and Welfare

Hans C. Blomqvist and Mats Lundahl

Chapter 4 in The Distorted Economy, 2002, pp 53-73 from Palgrave Macmillan

Abstract: Abstract In the foregoing chapter we derived the conditions for an optimal allocation of resources in an open economy. We could conclude that free trade potentially establishes the welfare-maximizing result, provided that a number of conditions are met: prices are flexible, production factors are mobile, the country cannot influence its terms-of-trade and perfect competition prevails in all markets. We also analysed a number of cases where all optimality conditions are not met. We looked at the effects of tariffs, at what will happen if the production factors are not completely mobile, and at the consequences when factor prices fail to adjust to conditions in other markets.

Keywords: Free Trade; Relative Price; Factor Price; Indifference Curve; World Market Price (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-4039-1434-7_4

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DOI: 10.1057/9781403914347_4

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