Topic 9- International Trade

Question 1

total trade measure=

Question 2

GDP

Answer 2

measure of total value placed on eveerything ina country

Question 3

what happens to supply and demand when there is no international trade

Answer 3

the market equilibrium is solely based on domesitc supply and demand

Question 4

World price

Answer 4

the prevailing price of a good in the world economy

NO SELLER ACCEPTS LESS THAN THIS AND NO BUYER BUYS MORE THAN THIS

Question 5

When you compare world price with domestic price, what are you trying to odetermine?

Answer 5

If the country in question has a comparative avantage in this goood

Question 6

If the domestic price is high?

Answer 6

means that that producing things domestically more expensive (dont have comp adv)

Question 7

If the domestic price is low?

Answer 7

meas that producing things domestcally is cheap (have comp adv)

Question 8

Price Takers

Answer 8

countries that take the price as igven to them in the world, they do not influence the price

CAN EITHER EXPORT OR IMPORT

Question 9

Elasticity of the world price

Answer 9

Perfedctly elastic horizontal line! at this price sllers can sell infiite, below no one wants and above no one would buy!

Question 10

If world price is above market equilibirum?

Answer 10

They can export goods! because the country can produce goods cheaper at home (equilibrium is BELOW world price) and then they can sell the rest of the goods to other countries

THE SURPLUS AREA!! IT BECOMES THE THIRD PARTY AREA (WORLD!!)

Question 11

What surplus does exporting affect? (When world price is above market equilibrium)

Answer 11

CONSUMER! because consumers have to buy at world price and if you cant afford it there are international buyers who can!

Question 12

what does world price represent supply or demand?

Answer 12

GLOBAL DEMAND when talking about exporting!

GLOBAL SUPPLY WHEN TALKING ABOUT IMPORTING

Question 13

who does…. help?
a) exporting
b) importing

Answer 13

PRODUCERS! higher prices for peoplelto sell at

CONSUEMRS! LOWER PRICES FOR consumers to buy at

Question 14

what does world price line mean when importing

Answer 14

REPRESENTS WORLD SUPPLY!

Perfectly elastic to represent how people an buy as much as they want at this price, none below, none above

Question 15

Whehn a country imports goods, who are the winners/losers

Answer 15

CONSUMERS WIN because they get extra surplus (where the shortage would usually be) nbecause they can buy cheaper from inernaitional producers

Question 16

What does a import world price line look like

Answer 16

LIKE a shortage line!!!!

Question 17

Can trade make everyone better off?

Answer 17

SINCE there is agreater GAIn from trade then A LOSS! it CANNNN potentially make people better off :) because people can redistribute their wealth,,, but will it?

Question 18

Tariff

Answer 18

A tax on imported goods

Question 19

When do tariffs matter?

Answer 19

When the good in question is being importd! If exported because comparative advantage in that good means that producers can sell internationally at world price, NO ONE IS GOING TO BE IMPORTING THAT GOOD

Question 20

Under free trade? domestic price will equal the world price

Answer 20

YES IT WILL

Question 21

What do tariffs create?

Answer 21

Deadweight loss <3

Question 22

How to depict a tariff on a supply and demand diagram?

Answer 22

1. It can only happen with imports (solid forizontal line below the market equilibrium)
2. Tariff is a tax so draw the tariff line above the world price imports line!!!!
3. The rectangle belown the tariff line and above imports line is the government revenue raised from the tariff

Question 23

What is the government revenue calculated as under the tariff?

Answer 23

Size of the tariff x imports that still happen after the tariff

Question 24

What is the price after tariff is imposed?

Answer 24

The world price +the amount of the tariff

Question 25

What is the impact on efficieny that a tariff creates?

Answer 25

DEADWEIGHT LOSS on either side of the tarizz related government revenue !!! two triangles!

Question 26

Why does a tariff create dw loss?

Answer 26

1. it is a type of tax 2.The left triangle is caused by domestic producers increasing production because the tariff promotes them to meet the demand! (Deadeweight loss from overproduction) 3. The right square is caused by domestic consumers decreasing demand because foreign goods have become more expensive (Deadweight loss from underconsumption)

Question 27

Tariff impact on: -price -quantity -welfare of domestic prod and cons -dw loss?

Answer 27

Price of domestic good is increased quantity of domestic good is decreased welfare of cons is lowered (they have to buy more expensive) welfare of prod is better (bc more incentive for prod to sell at higher price) dw loss is created bc tariff is TAX

Question 28

Import quotas are similar to

Answer 28

TAriffs

Question 29

What is the main difference between import quotas and tariffs?

Answer 29

Govts profit from Tariff License holders profit from Import Quotas

Question 30

What are other benefits from trade

Answer 30

1. INCREASED COMPETITION 2. INCREASED VARIETY 3. LOWER COST OF ECONOMIES THROUGH SCALE (some goods produced at low cost of if mass produced) 4. CHANGE OF IDEAS!

Question 31

Arguments against free trade

Answer 31

1. The jobs argument 2. National security 3. infant inndustry 4. unfair competition 5. protection as a bargaining chip

Question 32

The jobs argument against free trade

Answer 32

Many say that free trade results in job loss because if internatioonally it is cheaper to produce the good, it wil be imported and local producers willl shut down. JOB LOSS but workers simply move from one industry that does not have comp adv to the indisutry where the ocutnry is exporting/ has comp adv!!!!

Question 33

is it cheaper to produe all goods internationally?

Answer 33

even if this is true, trade works on comp adv not abs adv, so you willl always have a comp adv

Question 34

National security argument against free trade

Answer 34

country could become dependant on foreign imports of guns and steel (which would leave us weak in the middle of war) SO NO TRADE! valid argument but often perpetuated by non military personnel, like trump or steel ceos' who have other interests AND IF YOU IMPORT STEEL YOU GET IT FOR CHEAPER PRICES, WHICH CONSEQUENTLY!!!! WOULD ALLOW A STOCKPILE OF WEAPONS!!

Question 35

Infant industry argument!

Answer 35

Arguing that a baby industry should be protected from international trade so it has a chance to grow and prosper!! <33 sucks bc: 1. govt has to choose which to protect 2. supposed to be temporary but often last FOREVER 3. every industry should be held accountbale to market forces; oftne firms have to incur losses for long periods of time and thennn they finally get rich~

Question 36

Unfair competition argument against free trade!

Answer 36

Complaint that other ocuntries can subsidize production of certain goods, hwich will then be imported into ours for lower price, damaging domestic consumers THIS NOT FAIR bc those industries are skewed by market forces and this disagvantages are own people HOWEVERRR this actually benefits our consumers!! <3 so give them thanks that even though their own civilians have to deal with the insane taxation we thriving

Question 37

Protection as a bargaining chip

Answer 37

threatening to impose tariffs/quotas as a way to bargain with other countries!! but if the country doesnt back down and refuses to follow the threats our country is in between a rock and a hard place :( either impose tariff and suffer or not be a country of its word!!!

Question 38

Unliateral

Answer 38

removing trade restrictions on its own

Question 39

Multilateral

Answer 39

Removing trade restricitons across multiple

Question 40

in these diagrams w a world price elastic line, what is the domestic price

Answer 40

the INTERSECTION OF SUPPLY AND DEMAND

Question 41

Autarky

Answer 41

a country that does not trade with others NORTH KOREA

Question 42

What is the relation between import diagram and the shortage diagram

Answer 42

Quantity Supplies is LESS than Quantity demanded in both, in a shortage yall jus suffer in importing, that same shortage area is COVERED by imports! even though the cost here is greater than the benefit domestically, and the quantity produced domestically decreeases, the quantity consumed domestically increases AND NO SURPLUS IN A SHORTAGE!! THERE IS SURPLUS HWEN IMPORTING

Question 43

What is the relationship between surplus and exporting?

Answer 43

The same area! except instead of having to do a sale when there is surplus, they jus sell internationally!!! qdem

Question 44

What is the relationship between surplus and exporting?

Answer 44

The same area! except instead of having to do a sale when there is surplus, they jus sell internationally!!! qdem

Question 45

do tariffs increase producer surplus

Answer 45

YES because a lot more consumers jus buy domestically insteead of spendning more