chapter 20 Flashcards
For promoting diversification, the cost is the [. ] associated with devoting resources to production in industries in which there is [. ].
loss of national income, no domestic comparative advantage
specialization according to comparative advantage will maximize average [. ]
per capita GDP
[. ] can improve the earnings of one group whenever the restrictions increase the demand for that group’s services.
trade restrictions
Social and distributional concerns may lead to the adoption of [. ]. But the cost of such protection is a reduction in the country’s [. ].
protectionist policies, average living standards
Large countries can sometimes improve their terms of trade (and thus increase their national income) by [. ] on some imported goods; small countries cannot.
levying tariffs
An [. ] is nothing more than a new, small industry. If such an industry has large economies of scale or the scope for learning by doing, costs will be high when the industry is small but will fall as the industry grows.
infant industry
One practical problem with the infant industry argument for protection is that some infants [. ]” Once the young firm gets used to operating in a protected environment, it may resist having that protection disappear
“never grow up.
Another argument for protectionist policies is to help create an advantage in producing some product that is expected to generate economic profits through its sales to foreign consumers. In these situations, protection usually takes the form of providing [. ] or other financial assistance to domestic firms.
subsidies
The economic profits earned in foreign markets may exceed the cost to domestic taxpayers of providing the subsidies. This is the general idea of [. ]
strategic trade policy.
A country can potentially increase its national income by protecting [. ] and by subsidizing [. ] firms. Unless carefully applied, however, such policies can end up being redistributions from consumers and taxpayers to domestic firms, without any benefit to overall living standards.
infant industries, “strategic”
Exports raise [. ] by adding to the value of domestic output and income, but they do not add to the value of domestic consumption. The standard of living in a country depends on the [. ], not on the level of income
GDP, level of consumption
A country that imposes tariffs in an attempt to create domestic jobs risks starting a [. ] with its trading partners.
“tariff war”
A tariff imposes a [. ] for the importing country.
deadweight loss
tariff imposes 3 things:. furthermore the overall net effect is negative; a tariff generates a [. ]for the economy.
(1) costs on domestic consumers, (2) generates benefits for domestic producers, (3) and generates revenue for the government. deadweight loss
An [. ] drives up the domestic price and imposes a deadweight loss on the importing country.
import quota
