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.
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Literature
The systematization of distortions and the instruments for elimination of them are based on:
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The principle that a distortion should be attacked ‘at the source’ is dealt with in this work and also in:
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© 2002 Hans C. Blomqvist and Mats Lundahl
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Blomqvist, H.C., Lundahl, M. (2002). Trade, Distortions and Welfare. In: The Distorted Economy. Palgrave Macmillan, London. https://doi.org/10.1057/9781403914347_4
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DOI: https://doi.org/10.1057/9781403914347_4
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