Chapter 19 International Trade and Trade Policy

Question 0

exports

Answer 0

goods produced domestically but sold abroad

Question 1

imports

Answer 1

goods produced abroad but bought domestically

Question 2

bilateral trade

Answer 2

transactions between 2 individuals or countries

Question 3

multilateral trade

Answer 3

trade between several parties

Question 4

marginal rate of transformation

Answer 4

trade off between 2 inputs

Question 5

comparative advantage means…

Answer 5

individuals and countries specialize in those goods in whose production they are relatively the most efficient

Question 6

specialization increases productivity by

Answer 6

1. eliminating time where workers switch between tasks
2. repetition increases worker skill
3. creation of fertile environment for invention

Question 7

bases of comparative advantage

Answer 7

1. natural endowments (geographical determinants such as land, natural resources, climate)
2. acquired endowments (physical capital, human skills developed by a nation)
3. superior knowledge (technological advantages, acquired either as accident of history or through deliberate processes)
4. specialization (create comparative advantage in otherwise similar countries)
5. interactions (reinforce other sources of comparative advantage)

Question 8

protectionism

Answer 8

policy of protecting domestic industries from the competition of foreign-made goods

Question 9

commercial policies

Answer 9

policies directed at affecting either imports or exports

Question 10

tariffs

Answer 10

tax on imports

Question 11

quota

Answer 11

limits on the amount of foreign goods that can be imported

Question 12

quota rents

Answer 12

profits that result from the artificially created scarcity of quotas and accrue to firms that are allocated the right to import

Question 13

voluntary export restraints

Answer 13

persuade a country to limit its exports (essentially gives quota rents to foreign producers)

Question 14

dumping

Answer 14

sale of products overseas at prices that are not only lower than those in the home country but below cost

Question 15

countervailing duties

Answer 15

taxes that offset any advantage provided by subsidies

Question 16

beggar-thy-neighbor policies

Answer 16

deliberate attempts to increase national output and employment by reducing imports

Question 17

infant industry argument

Answer 17

industries must be protected from foreign competition while they are young, until they have a chance to acquire skills necessary to compete on equal terms

Question 18

strategic trade theory

Answer 18

protection can give a country a strategic advantage over rivals, for instance by helping reduce domestic costs as a result of economies of scale

Question 19

GATT (General Agreement on Tariffs and Trade)

Answer 19

established after WWII, reciprocity (one country lowered tariffs, others expected to do same), nondiscrimination (no GATT member offers special trade to only certain other members), transparency (import quotas and other nontariff barriers to trade should be converted to trade barriers to allow their effective impact to be ascertained)

Question 20

World Trade Organization

Answer 20

replaced GATT in 1995

Question 21

trade creation

Answer 21

regional trade blocs lower barriers among member countries

Question 22

trade diversion

Answer 22

trade diverted from non-bloc members that might have a comparative advantage