Chapter Seven: Int'l Trade Flashcards
Six Benefits of Trade
1) opportunities for producers to sell more of their products
2) new markets
3) increase efficiency for companies and countries
4) access to cheaper products
5) division of labor
6) specialization allows for greater investment
Comparative advantage
When a country chooses to specialize in producing and exporting what it produces most efficiently
Absolute advantage
Ability to produce something better than others
Heckscher-Ohlin theory
Characterizes states in terms of national endowments– the material and human resources they posses (land, labor, capital)
H-O argument
A country will export goods that make intensive use of the resources the country has in abundance.
A country will import goods that make intensive use of the resources in which the country is scarce.
Protectionism
The use of specific measure to shield domestic producers from imports
Trade Barriers
Impediments to the import of foreign goods
Trade restriction types
- tariffs
- quotas
- non tariff barriers
- subsidies
- prohibitions
What is the purpose of trade barriers?
reflect domestic concerns and support national producers
Domestic redistributive effect
Income is redistributed from domestic consumer to the protected domestic industry
Stopler-Samuelson Approach
Trade benefits owners of factors and production used to produce exported goods
Ricardo-Viner (specific factors) Approach
A worker’s interests flow from their sector of the economy (rather than the factor they own)
Trade protection effects
Help some groups, but harm the economy as a whole
What type of group will favor protectionism?
smaller groups
What institutions would favor trade liberalization?
Institutions that respond to broad national pressures
