Lecture 12

Question 1

What are three reasons to engage in trade?

Answer 1

1. Sell what is abundant at home ot purchase scarce prdoucts
2. Comparative advantage
3. Economies os scale and product differentiation

Question 2

What is a tariff?

Answer 2

Tax applid to goods obtained from abroad

Question 3

What is an issue with infant industry protection?

Answer 3

The infants may never grow up.

Question 4

what are quotas

Answer 4

physical limit on quantity imported

Question 5

what is an example of a preferential government procurement

Answer 5

(buy canadian products)

Question 6

what is an example of administrative barriers (red tape)

Answer 6

forms and procedures at customs

Question 7

Cases where protective tarriffs are the wrong policy instrument

Answer 7

• raising revenue (uses taxes)
• military/cultural (subsidize product)
• domestic redistribution (use income tax/transfer system)
• employment (use monetary/fiscal policy)
• trade balance (use exchange rate)

Question 8

Five reasons to be skeptical of net employment creation due to protectionist trade policy

Answer 8

• Negative effects on downstream sectors.
• Jobs moved rather than created (unemployed in wrong place or have wrong
  skills)
• Export jobs reduced by foreign retaliation.
• Export jobs reduced by exchange rate appreciation.
• Protection’s DWL shrinks overall economy

Question 9

What is a trade deficit

Answer 9

Imports > Exports