Midterm 1 Flashcards
(37 cards)
Trade
Exchange of goods and services across boarders
Imports
Domestic purchase of foreign produced goods and services
Exports
Sale of domestically produced goods and services
Free Trade
No artificial barriers to the exchange of goods and serves national markets
Absolute Advantage
Producing a good more efficiently than any other country
Comparative Advantage
Producing a good at a lower opportunity cost than any other country
Antilumping Duty
Special tariff on injurious imports priced at less than normal value
Countering Duty
Special tariff to offset lower price of imports subsidized by a foreign country
Non-Tariff Barriers
- Import quotas
- “Voluntary” export restraints
- Import licensing requirement
- Technical standards
- Health ad bio-safety rules
Public Good
- Non-excludable: Can’t prevent other from using it
- Non-rival: Doesn’t diminish if others use it
- Positive Externalities: Benefits even those who don’t contribute
Collective Action Theory
Groups can successfully overcome their collective action problem and lobby for protection if:
- They are a small group
- Geographically connected
- Similar interest
- Opportunity to meet and coordinate
- They have a lot to gain
Factor
A resource used for production (labor, capital, and land)
Trad Patters (Factors Model Hypothesis)
- ) A country has comparative advantage in producing products that intensely uses relatively abundant factors
- ) A country exports products that use its relatively abundant factors and imports
- ) This lets us predict which products a country will export/import and which countries it will trade with most
Income Effects of Trade
Trade makes income to relatively scare factors fall and income to relatively abundant factors increase
Factor Price Equalization
Trade makes income levels of a given factor converge across countries overtime
Policy Preferences
Owners of relatively abundant factors should support free trade
Owners of relatively scarce factors should support trade protection
Political Parties
Assumption: Political parties are coalitions among factor owners
- Left -> laborers
- Right -> Owners of capital and land (industrialist)
4 Big Things from the Factors Model
- ) Tells us what each country should trade
- ) Tells us who each country should trade with
- ) Tells us who is gaining/losing from trade in each country
- ) Tells us what partisan division we should see
Export Oriented
Rely on relatively abundant factors -> should prefer free-trade
Import Competing
Rely on relatively scarce factors -> Should prefer trade protection
Sectors Model Predictions
- ) Import competing industries prefer protection
- ) Export oriented industries prefer free trade
- ) Labor, unions, and management in a given industry share the same preferences about trade
- ) Country Label Prediction: When the economy becomes more export dependent, a government is more likely to liberate trade policy
- ) Partner-level Prediction: There is less domestic opposition to free trade arrangement with partners to a country that exports more and imports less
Collective Action Theory (summary)
- ) Producers dominate
- ) Predicts more protection than actually occurs
- ) No politics
Factors Model (summary)
- ) Comparative advantage is key
- ) Has politics (left = labor, right = industrialist)
- ) Overlooks differences in sectors
Sectors Model (summary)
- ) Doesn’t explain comparative advantage
- ) Builds on factors model and explains differences between factors
- ) More applicants when there are high adjustment costs