7: international trade Flashcards
International Trade
is an exchange involving a
good or service conducted
between at least two
different countries.
Import
means buying or
acquiring goods from outside the
country.
Export
means selling and
shipping of produced goods of a
country to another country.
The Equilibrium without Trade
When an economy cannot trade in
world markets, the price adjusts to
balance domestic supply and
demand.
The World Price and
Comparative Advantage
The first issue our economists take
up is whether Isoland is likely to
become a textile importer or a
textile exporter.
World Price
the price of a
good that prevails in the world
market for that good.
international trade in an exporting country
- consumer surplus
*before trade
- A+B
*after trade
- A
*change
-B
international trade in an exporting country
- producer surplus
*before trade
C
*after trade
B+C+D
*change
+(B+D)
international trade in an exporting country
- total surplus
*before trade
A+B+C
*after trade
A+B+C+D
*change
+D
who wins and who loses from trade in an exporting country.
- Sellers benefit because producer surplus increases by the area B + D.
- Buyers are worse off because consumer surplus decreases by the area B.
- Because the gains of sellers exceed the losses of buyers by the area D, total surplus in Isoland increases.
who wins and who loses from trade in an exporting country.
When a country allows trade and becomes an exporter of a good, domestic
producers of the good are better off, and domestic consumers of the good are
worse off.
who wins and who loses from trade in an exporting country.
Trade raises the economic well-being of a nation in the sense that the gains of
the winners exceed the losses of the losers.
tariff
a tax on goods produced abroad and sold domestically
A tariff causes a deadweight loss because a tariff is a type of tax.
Increased Variety of goods
Free trade gives consumers in all countries
greater variety to choose from.
Lower costs through economies of scale
Free trade gives firms access to
larger world markets and allows them to realize economies of scale more fully.
Increase competition
opening trade fosters competition and give the
invisible hand a better chance to work its magic.
Enhanced flow of ideas
The transfer of technological advances around the
world is often thought to be linked to the trading of the goods that embody those
advances.
The National-Security Argument
When an industry is threatened with competition from other countries
The Infant-Industry Argument
New industries sometimes argue for temporary trade restrictions to help them
get started.
The Unfair-Competition Argument
A common argument is that free trade is desirable only if all countries play by
the same rules.
The Protection-as-a-Bargaining-Chip Argument
argument for trade restrictions concerns the strategy of bargaining.
Trade Agreements
- North American Free Trade Agreement (NAFTA)
- General Agreement on Tariffs and Trade (GATT)
Unilateral
when a country removes its trade restrictions on its own.
Multilateral
a country reduces its trade restrictions while other countries do the
same.
