11. Lecture 6 - International Trade & Environment Flashcards
What is absolute advantage?
Ability to produce a particular good at a lower absolute cost than another.
What is comparative advantage?
Ability to produce a particular good at a lower opportunity cost than another.
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?
- Northland has comparative advantage in clothes
- Southland has comparative advantage in food
What is the negotiation space if Northland can make 0.5 food for 1 clothes and Southland can make 2 food for 1 clothes?
Between 0.5:1 and 2:1.
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?
2:1 (or just below that)
Name 2 critiques on the Ricardian model.
- Assumes immobility of production factors
- Assumes that countries can quickly specialize in everything
- Static model
- Ignores externalities due to trade and pollution
What does the net environmental effect of trade depend on? Name 1.
- Differences in clean/dirty technologies between trading countries
- Increase in production and consumption because of trade
What are the three underlying factors of the EKC and where are they most dominant?
- Scale effect (dominant in beginning)
- Composition effect (dominant in the middle)
- Technique effect (dominant in the end)
Name 2 negative and 2 positive impacts of trade on the environment
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
Name 1 example where EKC holds and 1 where it does not.
Holds:
- Sulphur dioxide
- Particulates
Does not hold:
- Municipal wastes
- CO2 emissions
- River quality
Explain why trade may not cause overfishing.
Trade may take pressure of overused and collapses stocks because it’s more efficient to import due to high harvesting costs.
What is the Porter hypothesis?
High environmental regulation will lead to technological innovation.
What are consumption externalities?
Externalities associated with consumption of a good, such as pollutant emissions from vehicles.
What is meant with “gains from trade”?
The net social benefits that result from trade.
What is dualistic land ownership?
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.
What is the “race to the bottom”?
The tendency for countries to weaken national environmental standards to attract foreign businesses or to keep existing businesses from moving to other countries.
What is a “pollution haven”?
A country or region that attracts high-polluting industries due to low levels of environmental regulation.
What are distortionary subsidies?
Subsidies that alter the market equilibrium in ways that are harmful to economic efficiency.
What is a side agreement?
A provision related to a trade treaty dealing with social or environmental issues.
What does IPAT stand for?
Impact = Population x Affluence x Technology
What does the specificity rule state?
Policy solutions should be targeted directly at the source of a problem.
What does the The NAFTA Commission on Environmental Cooperation do?
It produces reports on environmental issues but has few enforcement powers.
What are PPMs?
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.
What is decoupling?
Breaking the correlation between increased economic activity and similar increases in CO2 emissions.
What is the “second-best solution”?
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.
What is WTO’s Article XX?
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.
