A thought experiment

by Russ Roberts on January 21, 2011

in Dinner Table Economics, Trade

For your dinner table conversation…

Suppose a new nation was discovered in the heart of Africa or South America in the middle of deep jungle. Somehow, it has existed in secret, millions of people going about their lives, doing the best they can to feed their families and enjoy life. This nation, let us call it Newland, is like many other nations–full of all kinds of people, rich and poor, educated and uneducated, industrious and not so industrious. Until now, Newland has been self-sufficient–the Newlanders only trade among themselves. Now that Newland has been discovered, the residents of Newland begin to trade with the rest of the world.

Now some discussion questions.

How does the discovery of Newland affect the rest of the world’s economies? Is it good for the rest of the world or bad? Measured economic output for the world will increase because now there will be additional goods and services–the produced by Newland. Will the output of the rest of the world go down, offsetting some or all of the addition of Newland’s output, or will it go up, because trade with Newland will make the world richer, overall?

What will be the impact of adding Newland to the world on any one country, say the United States? Suppose the population of Newland is about 300 million and the skills of its people are very similar to those of the United States? Would that be good or bad for the United States? How would your answer differ if you were considering the growth in the US population from 150 million to 300 million? Would the discovery of Newland be similar or different?

Instead of Newland, consider China. In recent decades, China has become more integrated with the world economy. Has that been a good thing or a bad thing? Has it been good for the United States or bad? Has it been good for some people in the United States and bad for others?

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