Chapter 5 Flashcards
Why do governments intervene in international trade
Political, economic, cultural, security reasons
How do governments promote trade?
Trade subsidies
Trade facilitation
Trade promotion agency
Export processing zones
Trade education
Trade agreements
How do governments restrict trade?
Trade tariffs
Local content requirement
Import quota
Volontariat export restraints
Technical barriers to trade
Trade sanctions/embargo
Discriminatory product standards
Currency manipulation
What is free trade?
The government does not attempt to influence what its citizen
- can buy from another country
- can sell to another country
- can produce for another country
Allows countries to specialize in manufacturing and exportation of product
Enables most efficient utilization of world’s scarce resources
Why do countries trade?
Raise citizen’s standards
- provide access to what a country cannot produce
- Allows specialization to leverage country’s comparative advantage
- Provides access to knowledge and technology
What is mercantilism?
Country’s wealth is measure by its holdings of treasure (gold)
Exports should be greater than imports
Trade as assorted sum game
Use tariffs to reduce imports
Use subsidies to increase exports
What is the theory of absolute advantage?
The capability of a nation to produce a product more efficiently than any other nations.
What is the comparative advantage? (Opportunity cost)
A country can maximize its own economic well-being by specializing in the production of those goods and services it can produce relatively more efficiently and enhance global efficiency via its participation in free trade.
What does the theory of factor proportion aim to explain?
What are the sources of comparative advantage?
What are the source of comparative advantage?
A country will tend to export products that utilize relatively abundant production factors because they are relatively cheaper than scarce factors
