40. The following appeared as part of an article in a weekly newsmagazine. “The country of Sacchar can best solve its current trade deficit problem by lowering the price of sugar, its primary export. Such an action would make Sacchar better able to compete for markets with other sugar-exporting countries. The sale of Sacchar’s sugar abroad would increase, and this increase would substantially reduce Sacchar’s trade deficit.” Discuss how well reasoned... etc.
The author of this article argues that the country of Sacchar can best solve its current trade deficit problem by lowering the price of its main export, sugar. The line of reasoning is that this action would make Sacchar more competitive with other sugar-exporting countries, thereby increasing sales of Sacchar’s sugar abroad and, in turn, substantially reducing the trade-deficit. This line of reasoning is unconvincing for a couple of reasons. In the first place, this argument is based on an oversimplified analysis of the trade deficit problem Sacchar currently faces. A trade-deficit occurs when a country spends more on imports than it earns from exports. The author’s argument relies on the assumption that earnings from imports will remain constant. However, the author provides no evidence that substantiates this assumption. It is possible that revenues from imports will increase dramatically in the near future. if so, the course of action proposed by the author might be unnecessary to solve Sacchar’s trade deficit problem. Conversely, it is possible that revenues from imports are likely to decrease dramatically in the near future. To the extent that this is the case, lowering sugar prices may have a negligible countervailing effect, depending on the demand for Sacchar’s sugar. In the second place, increasing sales by lowering the price of sugar will not yield an increase in income unless the increase in sales is sufficient to overcome the loss in income due to the lower price. This raises three questions the author fails to address. First, will a price decrease in fact stimulate demand? Second, is demand sufficient to meet the increase in supply? Third, can Sacchar increase the sugar production sufficiently to overcome the deficit? In the absence of answers to these questions, we cannot assess the author’s proposal. In conclusion, the author provides an incomplete analysis of the problem and, as a result, provides a questionable solution. To better evaluate the proposal, we would need to know how revenues from imports are likely to change in the future. To strengthen the argument, the author must provide evidence that demand is sufficient to meet the proposed increase in supply, and that Sacchar has sufficient resources to accommodate the increase.