Week 6: Trade Models Flashcards
(20 cards)
What is autarky?
A situation with no trade, where domestic supply and demand determine prices.
What happens to price and quantity in autarky?
Prices are higher, and quantities are lower compared to open trade.
What is a tariff?
A tax on imported goods, raising their price above the world price.
What are the effects of a tariff?
Consumer surplus decreases.
Producer surplus increases.
Government gains revenue.
Deadweight loss occurs.
What is the Balance of Payments?
A record of all economic transactions between a country and the rest of the world.
What are the main components of BoP?
Current Account: Exports/imports of goods and services.
Capital Account: Investments in land, intangible assets, etc.
Financial Account: Financial flows (assets and liabilities).
What is the double-entry principle in BoP?
Every transaction has two equal and opposite entries (e.g., current account debit matched by financial account credit).
Example: Australians spend $5M on Bali tourism. How is this recorded?
Current Account: $5M service debit (import).
Financial Account: $5M credit (currency outflow).
What does the Stolper-Samuelson Model assume?
Factors of production can move freely between industries.
What is the Stolper-Samuelson Theorem?
Abundant factors gain from trade; scarce factors lose. Leads to class conflict.
What does the Ricardo-Viner Model assume?
Factors are industry-specific (cannot move between industries).
What does the Ricardo-Viner Model predict?
Export industry gains; import-competing industry loses. Leads to industry-based conflict.
What is New Trade Theory?
Explains intra-industry trade (similar goods, e.g., luxury brands) due to monopolistic competition and love for variety.
What is New New Trade Theory?
Focuses on firm heterogeneity; larger, productive firms dominate trade (e.g., multinationals like H&M).
What was the GATT’s key principle?
Non-discrimination (MFN and national treatment).
What is Embedded Liberalism?
A framework combining multilateral trade with domestic stability (Ruggie, 1982).
What replaced GATT?
he WTO (World Trade Organization).
Recent WTO achievements?
Bali Package.
Fisheries Subsidies Agreement.
E-Commerce initiatives.
Who proposed Embedded Liberalism?
John Ruggie (1982).
What did Rogowski (1987) argue?
Trade preferences depend on factor mobility (class vs. industry conflict).
