CH 3: Gains of Trade

Question 1

Unintended Consequences of Trade Restrictions

Answer 1

1) Higher input costs for domestic producers
2) Follow up subsidies to domestic producers affected by foreign trade restrictions
3) Movement of US companies
4) Higher product prices
5) Secondary job loss
6) Increased smuggling

Question 2

Key tariffs imposed on the US

Answer 2

Bourbon, Harleys, blue jeans, orange juice, soy beans

Question 3

Impetus for Trump Administration Trade Restrictions (5)

Answer 3

1) National Security
2) Protect essential domestic workers
3) Other countries stealing US tech
4) Protecting US jobs
5) Concerns about running a trade deficit

Question 4

WTO

Answer 4

World Trade Organization; promotes trade and economic development bu reducing trade restrictions

Question 5

NAFTA

Answer 5

North American Free Trade Agreement; reduces trade restrictions between Canada, Mexico, and US

Question 6

USMCA

Answer 6

United States/Mexico/Canada Agreement; revision of NAFTA in 1/29/2020 with new laws on the Internet, investment, and IP protection

Question 7

Executive Order

Answer 7

A rule or order issued by the president to an executive branch of the government and having the force of law

Question 8

Trade War

Answer 8

An economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party

Question 9

Trade Surplus

Answer 9

Value of exports > imports

Question 10

Trade deficit

Answer 10

Value of imports > exports

Question 11

Subsidies to domestic producers

Answer 11

Giving domestic producers money to support their production (which allows that country to sell its product at a lower price, making it difficult for other countries to produce at a competitive price as well without losing money)

Question 12

Product Standards

Answer 12

Rules about the quality and safety of products

Question 13

Embargo

Answer 13

Ban on an imported good

Question 14

Trade quota

Answer 14

Limit on the amount of an imported good

Question 15

Tariff

Answer 15

Tax on an imported good (increase in price of import)

Question 16

Dumping

Answer 16

When a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter’s domestic market (selling for lower than market value just to gain share)

Question 17

Protectionist Trade Policy

Answer 17

Another word for trade restrictions, attempts to protect a country’s domestic workers

Question 18

SEVEN arguments against free trade

Answer 18

1) US job loss
2) National security (country needs to be self sustaining first and not dependent on supply from others)
3) Infant-Industry
4) Unfair Competition (ie. stealing IP)
5) Protection as a Bargaining Chip
6) Foreign Work Abuse
7) Damaging Environment

Question 19

FOUR Benefits to Free Trade

Answer 19

1) Increased variety of goods
2) Lower costs through economies of scale
3) Increased competition
4) Enhanced flow of ideas

Question 20

Imports

Answer 20

Goods produced abroad and sold domestically

Question 21

Exports

Answer 21

Goods produced domestically and sold abroad

Question 22

Outsourcing

Answer 22

The practice of having workers in foreign lands perform tasks (typically services) that have traditionally been performed by domestic workers

Question 23

David Ricardo

Answer 23

Conceptualized the Principle of Comparative Advantage

Question 24

Self Sufficiency

Answer 24

Producing everything you need for yourself

Question 25

Specialization

Answer 25

Country or company focusing production on a particular good (typically one of which they have comparative advantage)

Question 26

Gains from specialization and trade

Answer 26

Allows you to consume beyond your capacity to produce

Question 27

Barter

Answer 27

Trading items for other items of value

Question 28

Mutual coincidence of wants

Answer 28

Trading items where both want what the other has (typically makes bartering quite difficult)

Question 29

Mediums of Exchange

Answer 29

Currency; common means to trade beyond bartering

Question 30

Comparative Advantage

Answer 30

When you have the lowest opportunity cost of producing something

Question 31

Absolute Advantage

Answer 31

When you can produce more of a good with the same amount of resources as someone else or can produce the same amount of good with fewer resources

Question 32

Principle of Comparative Advantage

Answer 32

Individuals, regions, firms, or nations can gain by specializing in the production of goods that they produce cheaply at a low opportunity cost and exchanging them for goods they cannot produce at a low opportunity cost

Question 33

Exchange/Trade

Answer 33

Allows a country to consumer beyond its productive capacity (along with specialization)