Myth 2: Foreign competition is unfair and hurts other countries when it is based on low wages.

1. Myth 1 : Free trade is beneficial only if your country is strong enough to stand up to foreign competition. • China once was weak because of shutting out the world. After this policy, China opened the door and started to enlarge the economy. Free trade makes it possible that China makes great profits from taking its comparative advantages in goods and then trade with other countries.

2. Myth 2: Foreign competition is unfair and hurts other countries when it is based on low wages. • The example is that Home is more productive than Foreign in both industries, and Foreign’s lower cost of wine production is entirely due to its much lower wage rate.But it doesn’t matter. All that matters to Home is that it is cheaper in terms of its own labor for Home to produce cheese and trade it for wine than to produce wine for itself.

3. Myth 3: Trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other nations. • A low wage doesn’t represent exploration. What we should ask is whether a country is worse off exporting goods based on low wages than she would be if she refused to enter into sunch demeaning trade.