Friday, March 4, 2011

Politicians Limiting Economic Well-Being

In an article from the New York Times, US politicians - if you read the article you will see both sides of the political spectrum - have stalled free-trade agreements. In Principles of Microeconomics, I present the basic supply and demand model with and without free trade assuming a "small" nation and price-taking behavior. Using this model and its assumptions, we see clearly that overall economic well-being (economic welfare or total surplus) increases as we move from the without trade to the with trade case. Unfortunately, this does not seem to be the case in the political arena, where delaying gains to the overall economy is outweighed by political gains.

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