gains from trade

Question 1

adam smith rationale for trade

Answer 1

if a foreign country can supply us w a commodity cheaper than we can make it, we shoulf buy it.
trade makes a nation wealthy, trade restrictions make it poorer.

Question 2

absolute advantage

Answer 2

the ability of a party to produce a good or service, using an abundance of available resources that other countries do not have

output when country dedicates all its resources to production of that resource

Question 3

comparative advantage

Answer 3

A lower relative opportunity cost than that of another producer or country.

what you should specialise in

Question 4

terms of trade

Answer 4

international exchange ratio
must be mutually beneficial
slope of new trade line

Question 5

auturky

Answer 5

no trade in country/before specislaisation
country is self sufficient

Question 6

new trade line

Answer 6

start at point where each country will be trading (resource specialising in)
eqm point of new consumption after trade

Question 7

tariffs

Answer 7

excise taxes or “duties” on the dollar values or physical quantities of imported
goods. They may be imposed to obtain revenue or to protect domestic firms.

Question 8

revenue tariff

Answer 8

usually applied to a product that is not being produced domestically
designed to provide the federal government with revenue, and their rates tend to be modest

Question 9

protective tariff

Answer 9

implemented to
shield domestic producers from foreign competition. These tariffs impede free trade by increasing
the prices of imported goods and therefore shifting sales toward domestic producers.
not high enough to stop the importation of foreign goods, but put foreign producers at a competitive disadvantage

Question 10

import quota

Answer 10

government-imposed limit on the quantities or total values of specific
items that are imported in some period. Once a quota is filled, further imports of that product are
prohibited. Import quotas are more effective than tariffs in impeding international trade. With a
tariff, a product can go on being imported in large quantities. But with an import quota, all imports
are prohibited once the quota is filled

Question 11

voluntary export restriction

Answer 11

trade barrier by which foreign firms “voluntarily”
limit the amount of their exports to a particular country. VERs have the same effect as import
quotas. Exporters agree to them to avoid more stringent tariffs or quotas.

Question 12

non-tariff barriers

Answer 12

onerous licensing requirements, unreasonable standards
pertaining to product quality, or simply bureaucratic hurdles and delays in customs procedures.
Eg some nations require importers of foreign goods to obtain licenses and then restrict the number
of licenses issued.

to limit imports

Question 13

export subsidy

Answer 13

government payment to a domestic producer of export goods designed
to aid that producer in attracting foreign buyers for its output. By offsetting some of a firm’s production costs, the subsidies enable the domestic firm to charge a lower price and thus to sell more
exports in world markets.

Question 14

effects of tariffs

Answer 14

Decline in consumption
Increased domestic production
Decline in imports from foreign producers
tariff revenue