Chapter 8 and 9 B Flashcards

0
Q

What is the difference between absolute advantage and comparative advantage?

A

AA says to specialize in what were good at ad export it. then we import everything else. an AA exists when a company produces somethin more than any other area.

CA says a company should produce goods that they are relatively more productive in.
CA is when a business produces what they can do best, while taking other businesses in consideration. I.e. if the other businesses produce wheat at 19 and corn 5, and your business produces wheat at 20 (and corn 9), you will produce corn instead because it increases the size
of the pie.

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1
Q

what are the different theories of international trade policy? (4)

A
-classical country based (mercantilism, absolute
advantage, and comparative advantage)
-New trade theory
-trade restrictions
-case against protection
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2
Q

Mercantilism does what? Why is it a zero sum game?

A

it’s the idea that exporting is better than importing. actually it makes u worse off because you have less goods, meaning prices are higher. additionally, exporting would get the people gold, which is not a productive asset. it just sits in vaults. unlike metal or wood that could do things

it’s a zero sum game because we get gold, but prices are higher and we get less selection. we don’t benefit

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3
Q

new trade theory is?

A

A business that receives economies of scale is supported, therefore only a few companies are promoted in a nation.

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4
Q

What are some trade restrictions an how do they work?

A

Tariff barriers. charging money for importing goods. non tariff barriers - quotas and red tape (check the quality and charge fees)
NAFTA decreases barriers

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5
Q

What role does government play in trade?

A

make sure we benefit by setting up bumps and roadblocks.
They promote free markets, have tax policy support, funding for post secondary research and incubator space, trade offices, protect intellectual properties rights,
create stable economy and stable dollar, control inflation and interest rates, and control the use of technology.

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6
Q

Gains from trade?

A

Comparative advantage benefits bc we end up with more.
we benefit from diversity of goods, and economies of scale.
-while exporters
may benefit, importing areas may lose cause of lost jobs.

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7
Q

What is Gatt and What are GATT’s 7 instruments of trade policy?

A

General agreement on tariffs and trade.

  • tariffs
  • non tariff barriers
  • Volluntary Export Restrictions (VER)
  • subsidies
  • local content requirements
  • administrative policies
  • anti dumping duties
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8
Q

What is Voluntary export restrictions?

A

our gov convinces others to set export restrictions

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9
Q

local content requirements are?

What are administrative policies?

A

a fraction of goods must be produced locally

AP are rules that make it difficult for imports to enter the country

ADR are used to stop dumping-selling goods in foreign markets below production costs.

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