International trade Flashcards
(15 cards)
What does the domestic price that prevails without international trade tell us about a nation’s comparative advantage?
If the domestic price that prevails without international trade is above the world price, the country has a comparative advantage in producing the good
When does a country become an exporter of a good? What about an importer?
A country will export a good for which its domestic price is lower than the prevailing world price. Thus, if a country has a comparative advantage in producing a good, it will become an exporter when trade is allowed. A country will import a product for which its domestic price is greater than the prevailing world price. Thus, if a c country does not have a comparative advantage in producing a good, it will become an importer when allowed.
For a newly importing country, where is the world price relative to the price before trade?
Lower
How is consumer surplus affected when the world price us higher than the domestic price?
decreases
What is the calculation for the additional surplus added when a country imports cheaper goods from trade?
Amount imported X the price / 2
How is produce surplus affected by decreased prices from trade
decreased
What is a tariff? What are its economic effects?
A tariff is a tax on goods produced abroad and sold domestically. If a country is an importer of a good, a tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade, increasing the price of the good, reducing consumer surplus and total surplus, while raising producer surplus and government revenue
What is the job-loss argument against free trade? How do economists respond?
It destroys jobs in industries that are less competitive; Economists respond that it creates other jobs in sectors where the country has a comparative advantage.
What is the national security argument against free trade? How do economists respond?
Industries critical to national security might be lost; concerns about national security tend to be exaggerated- and the payoff to national security might be better with cheaper imports.
What is the infant industry argument against free trade? How do economists respond?
New industries need protection from foreign competition until they become profitable; it is difficult to identify industries that will become profitable in the long term. This protection might be hard to remove in the long term.
What is the fair-competition against free trade?
Other countries subsidize their exports meaning they are more competitive compare to domestic goods; economists respond that it just means cheaper consumer goods and more well-being for them.
What is the bargaining-chip argument for free-trade?
Tariff threats can be used as a negotiating tool to lower tariffs; this may just backfire and leave more tariffs in place, making everyone worse off.
What Is a unilateral approach to achieving free trade? What is an example?
A country removes trade restrictions on its own. Britain removing the corn laws in the 1800s.
What is a multilateral approach to achieving free trade?
A country reduces its trade restrictions while others do the same, based on an agreement reached through bargaining. NAFTA in 1993 and the GATT negotiations since WW2
