Final answer:
When a free trade area brings in higher quality, cheaper goods due to trade liberalization, domestic producers that can't compete with these imports on cost or quality may shut down, resulting in unemployment. Yet, the broader market benefits from access to these superior and more affordable products.
Step-by-step explanation:
The situation you're inquiring about is described as a scenario in which a country or a region within a free trade area replaces lower-cost external suppliers with higher-cost suppliers. This typically occurs when trade liberalization policies, such as elimination of tariffs and non-tariff barriers, allow for the import of higher quality, cheaper goods from other countries.
For example, if Country A removes trade barriers on sugar, it would lead to the import of better quality, cheaper sugar from other countries with a comparative advantage in sugar production. Consequently, domestic sugar producers in Country A may find it challenging to compete with these imports. This increase in competition demands that these domestic industries either lower their production costs or improve their quality to stay competitive. If they fail to do so, they might eventually be forced to shut down, leading to job losses and market exit.
The overall effect of trade liberalization can thus result in more unemployment in the short term for workers within industries that are unable to compete. However, from a broader economic perspective, consumers and the market as a whole tend to benefit from access to better quality and lower-priced goods, thereby increasing the quality of life for millions of people.