11. Lecture 6 - International Trade & Environment

Question 1

What is absolute advantage?

Answer 1

Ability to produce a particular good at a lower absolute cost than another.

Question 2

What is comparative advantage?

Answer 2

Ability to produce a particular good at a lower opportunity cost than another.

Question 3

Northland can make 0.5 food for 1 clothes and Southland can make 2 food for 1 clothes. Who has comparative advantage on which product?

Answer 3

• Northland has comparative advantage in clothes
• Southland has comparative advantage in food

Question 4

What is the negotiation space if Northland can make 0.5 food for 1 clothes and Southland can make 2 food for 1 clothes?

Answer 4

Between 0.5:1 and 2:1.

Question 5

What is the best possible trade ratio for Northland if Northland can make 0.5 food for 1 clothes and Southland can make 2 food for 1 clothes?

Answer 5

2:1 (or just below that)

Question 6

Name 2 critiques on the Ricardian model.

Answer 6

1. Assumes immobility of production factors
2. Assumes that countries can quickly specialize in everything
3. Static model
4. Ignores externalities due to trade and pollution

Question 7

What does the net environmental effect of trade depend on? Name 1.

Answer 7

1. Differences in clean/dirty technologies between trading countries
2. Increase in production and consumption because of trade

Question 8

What are the three underlying factors of the EKC and where are they most dominant?

Answer 8

1. Scale effect (dominant in beginning)
2. Composition effect (dominant in the middle)
3. Technique effect (dominant in the end)

Question 9

Name 2 negative and 2 positive impacts of trade on the environment

Answer 9

Negative

• Trade increases growth
• Trade may decrease environmental quality globally if EKC does not hold
• Trade increases transportation externalities
• Trade facilitates leakage

Positive

• If EKC holds, it increases growth and then pollution reduction
• Trade promotes spread of environmentally friendly technologies
• Free trade fosters international cooperation

Question 10

Name 1 example where EKC holds and 1 where it does not.

Answer 10

Holds:

• Sulphur dioxide
• Particulates

Does not hold:

• Municipal wastes
• CO2 emissions
• River quality

Question 11

Explain why trade may not cause overfishing.

Answer 11

Trade may take pressure of overused and collapses stocks because it’s more efficient to import due to high harvesting costs.

Question 12

What is the Porter hypothesis?

Answer 12

High environmental regulation will lead to technological innovation.

Question 13

What are consumption externalities?

Answer 13

Externalities associated with consumption of a good, such as pollutant emissions from vehicles.

Question 14

What is meant with “gains from trade”?

Answer 14

The net social benefits that result from trade.

Question 15

What is dualistic land ownership?

Answer 15

An ownership pattern, common in developing countries, in which large landowners wield considerable power and small landowners tend to be displaced or forced onto inferior land.

Question 16

What is the “race to the bottom”?

Answer 16

The tendency for countries to weaken national environmental standards to attract foreign businesses or to keep existing businesses from moving to other countries.

Question 17

What is a “pollution haven”?

Answer 17

A country or region that attracts high-polluting industries due to low levels of environmental regulation.

Question 18

What are distortionary subsidies?

Answer 18

Subsidies that alter the market equilibrium in ways that are harmful to economic efficiency.

Question 19

What is a side agreement?

Answer 19

A provision related to a trade treaty dealing with social or environmental issues.

Question 20

What does IPAT stand for?

Answer 20

Impact = Population x Affluence x Technology

Question 21

What does the specificity rule state?

Answer 21

Policy solutions should be targeted directly at the source of a problem.

Question 22

What does the The NAFTA Commission on Environmental Cooperation do?

Answer 22

It produces reports on environmental issues but has few enforcement powers.

Question 23

What are PPMs?

Answer 23

Process and production methods: international trade rules stating that an importing country cannot use trade barriers or penalties against another country for failure to meet environmental or social standards related to the
process of production.

Question 24

What is decoupling?

Answer 24

Breaking the correlation between increased economic activity and similar increases in CO2 emissions.

Question 25

What is the “second-best solution”?

Answer 25

A policy solution to a problem that fails to maximize potential net social benefits, but that may be desirable if the optimal solution cannot be achieved.

Question 26

What is WTO’s Article XX?

Answer 26

A World Trade Organization rule allowing countries to restrict trade in order to conserve exhaustible natural resources or to protect human, animal, or plant life or health.