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Prices versus Costs
Why do we favor free trade? Is it because prices are lower in other countries? No. It's because costs of production are lower in other countries. Prices and costs are not the same.
Consider, for example, the issue of drug reimportation. Why do politicians and some consumers want to reimport drugs from other countries? Is it because costs of production are lower in other countries? No. It's because prices are lower in other countries. Once one realizes this it should become obvious why drug reimportation is not "free trade" and promises little or no net benefits - drug reimportation doesn't lower costs and thus there are few efficiency gains to be had by reimportation.
Addendum: A more complete analysis of reimportation would look at the effects on consumption (slight increase in the US, potentially large reduction in the "exporting" countries) and the effects on innovation (reduced).
Posted by Alex Tabarrok on May 13, 2004 at 07:55 AM in Economics | Permalink
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