chapter 1

Question 1

what is trade?

Answer 1

the VOLUNTARY exchange of goods, services, assets or money between one person or organization and another

Question 2

what is international trade?

Answer 2

trade between residents of two countries (crossing boarders)

Question 3

why does international trade occur?

Answer 3

1. higher quality
2. less expensive products
3. more quantity

Question 4

what are the two types of international trade theories?

Answer 4

early country based theories and modern firm based theories

Question 5

what are early country based theories?

Answer 5

before world war 2, focus on the individual country, trading in commodities, interindustry trading

Question 6

what is trading in commodities? (early country based theories)

Answer 6

quality is the same, all we care about is lowest price. Ex: any metals, gas, oil, staple foods

Question 7

what are modern firm based theories?

Answer 7

emerged after world war 2, focuses on International trade, differentiated goods, intraindustry

Question 8

what are differentiated goods (modern firm based theories)

Answer 8

for the price (ex: apple products), reliable, popularity, reputation, good value. It’s not cheap but you get it for reasons other than lowest price

Question 9

interindustry vs intrainindustry?

Answer 9

1. Inter industry trade: trading one type of good for another
2. Intra industry trade: ex: laptops for laptops, cars for cars

Question 10

what is mercantilism (early country based theories)?

Answer 10

philosophy that says that a country’s wealth is measured by its gold and silver, focuses a lot on exports, want ton make everything from our country, gvt gains from this theory, exporters lose out

Question 11

what is absolute advantage?

Answer 11

when a country, individual, or entity can produce a particular good or service with fewer resources (such as time, labor, or materials) than another country, individual, or entity, productivity per hour, pure specialization

Question 12

what is a risk of absolute advantage

Answer 12

the economy becomes too reliable on one good or service, resource shortage,

Question 13

what is comparative advantage?

Answer 13

Even though you are better than me at everything, focus on what you are RELATIVELY better at and we will trade, focuses on OPPORTUNITY COST, also producivbity per hpur

Question 14

what is the relative factor endowments theory (heckshcer ohlin theory)

Answer 14

a country will have a comparative advantage in producing products that use abundant resources, not really looking at productivity, ome countries are relatively capital-abundant, while others are labor-abundant.

Question 15

what is the Leontief paradox?

Answer 15

the USA was a capital abundant country but was using labour abundance to export which goes against the relative factor n endowments theory

Question 16

what is linders country similarity theory? (modern firm based theory)

Answer 16

Looking Per capita income of each country, if you look at both and gthey are similar you can trade, intraindustry trade, differentiated goods

Question 17

what is the new trade theory (MODERN firm based theory)

Answer 17

focuses on intrainindustry trading, economies of scale, bring down boarders

Question 18

what is economies of scale?

Answer 18

producing more–> cost of producing the service decreases

Question 19

what are the two types of international investments?

Answer 19

foreign portfolio investments (FPI) and foreign direct investments (FDI)

Question 20

what is FPI?

Answer 20

a passive investment, dont make decisions, lending money, shorter term ibvestemnets, dont have control

Question 21

what is fdi?

Answer 21

you make decisions, investors directly invest, long term investments

Question 22

what are the two political factors affecting FDI?

Answer 22

1)avoidance of trade barriers (dont have trade barriers so that foreign investors are more appealed to do business)
2) economic development incentives (gvt may offer incentives ti encourage FDI in their country)

Question 23

what is protectionism?

Answer 23

protecting certain parts of our economy

Question 24

what are the two effects that protectionism could have?

Answer 24

1. impact on Foreign Producers: These policies can affect the ability of foreign producers to compete in the domestic market of the country where protectionism is practiced. This is often achieved through measures like tariffs, quotas, or trade barriers.
2. Impact on International Trade: Protectionist policies can also influence a company’s ability to engage in international trade. They can either limit or enhance a company’s capacity to sell abroad or acquire necessary foreign supplies

Question 25

why do governments employ protectionist measures?

Answer 25

Governments employ protectionist measures with the aim of achieving various economic, social, and political goals

Question 26

policymakers involved in shaping protectionist policies face what challenges

Answer 26

conflicting objectives and pressure from interest groups. These factors can complicate the decision-making process regarding trade policies.

Question 27

what is the role of stakeholders?

Answer 27

they are invested in what you are doing (ex: workers, suppliers, owners, politicians)

Question 28

what are the effects of trade restriction?

Answer 28

brings losers and winners among countries, companies and workers

Question 29

when consumers gain for free trade, who loses out?

Answer 29

companies and workers

Question 30

what are the four main economic rationales on why governments intervene in trade

Answer 30

fighting unemployment, protecting infant industries, developing an industrial base and economic relationships with other countries

Question 31

when putting restrictions on imports to create jobs, what can occur ? (fighting unemployment )

Answer 31

1. lead to retaliation by other countries aka trade wars 2. are less likely retaliated against effectively by small countries 3. are less likely to be met with retaliation if implemented by small economies 4. may decrease export jobs because of price increases 5. may decrease export jobs because of lower incomes abroad

Question 32

what is the infant industry argument

Answer 32

gvt should shield an emerging industry from foreign competition by giving it a large share of the domestic market until it can compete on its own

Question 33

the infant industry argument says that production becomes more competitive over time because of what?

Answer 33

1. increased economies of scale (when you produce more of something, cost of producing each unit decreases ) 2. greater worker efficiency

Question 34

because of infant industries, what do countries use ?

Answer 34

protectionist policies

Question 35

how does the gvt decide which countries get chosen for the infant industry argument?

Answer 35

they have to have a High probability of success

Question 36

Countries that are trying to develop an industrial base may intervene in what?

Answer 36

trade flows

Question 37

why do countries promote industrialization? (developing an industrial base)

Answer 37

brings faster growth than agriculture - brings in investment funds - diversifies the economy - creates growth in manufactured goods - reduces imports and promotes exports Puts tariffs to be the best (about AE)

Question 38

what could be some of the issues shifting from agriculture to more industralizaton? (developing an industrial base)

Answer 38

1. may be too diffficult of a transition 2. could be too big of a shift 3. there were a lot of opportunities in factories for unskilled workers but this has changed. technology has replaced unskilled workers and now education is really emphasized

Question 39

why are trade controls used? (economic relationships with other countries )

Answer 39

to improve the balance of payments to gain fair access to foreign markets (comparable access argument) as a bargaining tool (believability and importance) to control prices (dumping, optimum-tariff theory)

Question 40

what is the comparable access argument?

Answer 40

companies that have access to similar resources, information, or markets should be subject to similar regulations or competitive conditions.

Question 41

if prices get too high? (economic relations with other countries )

Answer 41

it could result in smuggling or substitution

Question 42

if prices get too low? (Economic Relationships With Other Countries)

Answer 42

there is an incentive to produce less or to shift foreign production and sales

Question 43

what is dumping?

Answer 43

I made too Many of a product so I will sell them to another place for super cheap. However its unfair practice for the country being dumped on

Question 44

what is the optimum Tarif theory?

Answer 44

an economic concept that suggests a government should impose tariffs (taxes on imports) in order to maximize its own economic welfare.

Question 45

according to the optimum tariff theory, what will a foreign producer do

Answer 45

will lower its prices if the importing company places a tax on its products.

Question 46

what is the essential industry argument?

Answer 46

protect essential industries so the country is not dependent on foreign supplies

Question 47

in order to use the essential industry argument, what should the gvt do?

Answer 47

– determine which industries are essential – consider costs and alternatives – consider political consequences

Question 48

for promoting accetibale practices abroad, what does tis mean

Answer 48

trade limitations could be used to compel a foreign country to amend to an object able practice, pressuring goveremts to change their views on different issues like human rights or the environment

Question 49

what is the non economic rationale of maintaining or extending spheres of influence?

Answer 49

Governments provide assistance and encourage imports from countries that join a political alliance or vote a preferred way within international bodies could coerce gvt or punish

Question 50

what is preserving national culture

Answer 50

helping to sustain an identity that sets the country apart, limiting exports of historical items that are apart of the culture, limiting foreign products

Question 51

what are the two types of trade control?

Answer 51

1. those that indirectly affect the amount traded by directly influencing price 2. those that directly limit the amount of good that can be traded

Question 52

what are tariffs?

Answer 52

refer to a government levied tax on goods shipped internationally

Question 53

what are tariffs put on?

Answer 53

goods entering, leaving or passing through a country for protection or revenue on a per unit or a value basis

Question 54

what are the different types of tariffs

Answer 54

specific duty: set dollar amount ad valorem tariff: percentage a command duty: both a set dollar and percentage

Question 55

what are subsidies?

Answer 55

Direct assistance to companies to make them more competitive – one of the most common ways to influence price

Question 56

what are other direct influencers of price

Answer 56

aid and loans

Question 57

what are the two types of aids and loans

Answer 57

tied (in the contract) and untied (not part of the contract)

Question 58

what are quotas?

Answer 58

limit the quantity of a product that can be exported or imported

Question 59

what are the two types of quotas?

Answer 59

1. voluntary export restraint (dont have a contract between countries but I voluntarily agree to limit the amount of goods I ship to you) 2. embargoes ( full stop, none can come in none can Come out)

Question 60

what are other direct mquantity limiters

Answer 60

buy local standards and labels specific permission requirements administrative delays

Question 61

what is the world trade organization

Answer 61

A really Important org for interantomal trade when where you become a member you agree to abide by a set of rules for international trade. Helpful for countries because it creates standardization for trade, can settle trade problems