Chapter 9 - International Trade Flashcards
What is comparative advantage?
Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country, enabling mutually beneficial trade.
What is the world price?
The world price is the price of a good that prevails in the global market, determining whether a country will export or import the good.
How does a country benefit from exports?
A country benefits from exports because producers sell at higher world prices, increasing their revenue and leading to greater specialization in efficient industries
What are the effects of imports on a country?
Imports lower domestic prices, benefiting consumers with cheaper goods but potentially hurting domestic producers due to increased competition.
What is consumer surplus and how is it affected by trade?
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. Trade increases consumer surplus by lowering prices and increasing variety.
What is a tariff, and what are its effects?
A tariff is a tax on imported goods. It raises the price of imports, reducing the quantity imported, protecting domestic producers, but causing a deadweight loss.
What is producer surplus and how is it affected by trade?
Producer surplus is the difference between the price producers receive and their cost of production. Trade can decrease producer surplus for import-competing industries but increase it for exporters.
What is the jobs argument for restricting trade?
The jobs argument claims that imports harm domestic industries, leading to job losses. However, trade also creates jobs in export industries, often offsetting these losses.
How does the national security argument justify trade restrictions?
The national security argument asserts that certain industries are critical during wartime or crises, so they should be protected from foreign dependence.
What is the infant industry argument?
The infant industry argument states that new industries may need temporary protection from international competition to develop and become competitive.
What is the unfair competition argument?
This argument suggests that foreign competitors may have unfair advantages, like government subsidies, which justify trade barriers to level the playing field.
What are import quotas?
Import quotas are limits on the quantity of a good that can be imported, restricting supply to raise domestic prices.
What is the deadweight loss of a tariff?
The deadweight loss of a tariff is the loss of total surplus due to reduced trade volumes, caused by distortions in consumer and producer decisions.
What is trade liberalization?
Trade liberalization is the removal or reduction of trade barriers like tariffs and quotas, aimed at increasing trade and economic efficiency.
What is the role of the World Trade Organization (WTO)?
The WTO oversees international trade rules, resolves disputes, and promotes trade liberalization among member countries.
