Question

The opportunity to exploit economies of scale is one of the gains to be made from removing tariffs and other trade distortions. These gains will be the result of a decrease in_____

a. the consumption distortion loss triangle.
b. international labor mobility.
c. the production distortion loss triangle.
d. world prices of imports.
e. excessive entry and inefficient business practices.

Answer 1

The gains from removing trade barriers and exploiting economies of scale result in a decrease in the production distortion loss triangle, lower production costs, and increased trade volumes. Therefore correct option is C

Step-by-step explanation:

The opportunity to exploit economies of scale is one of the gains made from removing tariffs and other trade distortions. When tariffs are reduced, firms can produce on a larger scale, leading to a decrease in production costs and an increase in trade volumes. This decreased cost per unit as production scales up contributes to an overall reduction in the production distortion loss triangle, as firms become more efficient and can offer goods at lower prices. This efficiency leads to enhanced competition, benefiting consumers with better or less expensive products, and providing a broader market for businesses. The process may result in job dislocation and changes to industry dynamics where less competitive businesses cannot sustain themselves, but on balance, the gains from trade are substantial for the entire nation.