CH 4A

Question 1

Consumer Surplus

Answer 1

The difference between the amount that buyers would be willing and able to pay for a good and the actual amount they do pay.

Question 2

Free-trade Argument

Answer 2

If each nation produces what it does best and permits trade, over the long term each party will enjoy lower prices and higher levels of output, income, and consumption than could be achieved in isolation.

Question 3

Infant-industry Argument

Answer 3

A tariff that temporarily shields newly developing industries from foreign competition.

Question 4

Producer Surplus

Answer 4

The revenue producers receive over and above the minimum amount required to induce them to supply the good.

Question 5

Willingness to Pay (Consumer)

Answer 5

the max amount a consumer will pay for a product.

Question 6

Market Consumer Surplus

Answer 6

total of all individual consumer surplus.
- EX: Sussie’s CS + Mark’s CS + Zach’s CS + Fatem’s CS

Question 7

Market Producer Surplus

Answer 7

total of all producers’ individual producer surplus.
- EX: Nike’s PS + Adidas’ PS + Puma’s PS + Reebok’s PS

Question 8

Efficiency in terms of Total Surplus

Answer 8

Allocation of resources is efficient when total surplus is maximized.

Question 9

Total Surplus

Answer 9

PS + CS

Question 10

ROW

Answer 10

“Rest of World.” Treated as a single country.

Question 11

Calculate the TOT

Answer 11

using the slope of the trade triangle (the rise and run from the movement of the point of production to the point of consumption)

Question 12

Arbitrage

Answer 12

profit made by exploiting price differences. A person will buy low, go elsewhere, and sell high.

Question 13

In autarky, two countries have domestic markets with different prices. After trade which country exports the good and which country imports the good?

Answer 13

The country with the higher price becomes an importer of the good. The country with the lower price becomes the exporter of the good.

Question 14

In autarky, two countries have domestic markets with different prices. Which country’s producers are hurt by trade? Which country’s producers gain from trade?

Answer 14

The country with the higher price have producer that are hurt by trade. The country with the lower price has producers that gain from trade.

Question 15

In autarky, two countries have domestic markets with different prices. Which country’s consumers are hurt by trade? Which country’s consumers gain from trade?

Answer 15

The country with the higher price has consumers that gain from trade. The country with the lower price has consumers that are hurt by trade.

Question 16

Ultimately Common Price

Answer 16

the difference in prices will meet at a new, common price between the two old prices when trade happens.

Question 17

Positive Effect

Answer 17

Factual; what is…

Question 18

Normative Effect

Answer 18

Prescriptive; what should be…

Question 19

In autarky, two countries have domestic markets with different prices. What does the higher price country’s market look like after trade?

Answer 19

Check Notes

Question 20

In autarky, two countries have domestic markets with different prices. What does the lower price country’s market look like after trade?

Answer 20

Check Notes

Question 21

Deadweight Loss. Visualize it.

Answer 21

The net loss of economic benefits to a domestic economy because of the protective and consumption effect of a trade barrier.