EC2008 Flashcards
What factors influence trade patters ?
distance, cultural affinity, and trade agreemets
What is the gravity model?
The gravity model is a mathematical model that predicts and explain trade relationships
What can impact on the volume and nature of international trade
government policies such as: tariffs, quotas, and trade agreements
what does international trade focus on?
the exchange of goods nad sevices between countries
What does international finance focus on?
financial transactions, monetary exchange and investments
what is the Ricardian model
it examines the difference in the productivity of labour [due to differences in technology] between countries
what is the specific factors model?
Also known as the Heckscher-ohlin model, it examines difference in labour, labour skill, physical capital land or other factors of PRODUCTION between countries
how is comparative advantage defined?
it is defined by comparing the opportunity cost across countries
what are the key concepts in the definition of the Ricardian model
Comparative advantage and opportunity cost
what is the production possibility frontier [PPf]
THe PPF of an economy shows the maximum amount of goods that can be produced for a fixed amount of resources
what are relative wages
they are the wages of the home country relative to the wages in the foreign country
what is economies of scale
it is the cost advantge that come from producing on a larger scale
two types of economies of scale
internal and external
what is interna economies of scale
when the cost per unit of output depends on the size of the firm
what is external economies of scale
when the cost per unit of output depends on the size of the industrywh
what are the different forms of external economies of scale
knowledge spillover
specialised supplies
labour pooling
what is the learning curve
it is a graphical representaion of dyanamic increasing returns to scale
what can the learning curve justify
protectionism
what is dumping
it is the practice of charging a lower price for exported goods than for goods sold
domestically
what is dumping an example of
price discrimination
when can price discrimination and dumping occur
- imperfect competition exist
market are segmented so that goods are not easily bought in one market and resold in another
what do movements in factors of production include?
- labour
- the transfer of financial assets through international borrowing and lending
- transactions of multinational corporations involving direct ownership of foreign firms
what is free trade
refers to the exchange of goods and services between countries without the imposition of barriers such as tariffs, quotas, or other restrictions.
what does the Ricardo model analyse
it analyses how international trade relates to labour productivity
how many factores does the heckscher-ohlin model have?
two factors
what is the terms of trade
it refers to the price of exports relative to the price of imports
what is usually biased?
growth
what is export biased growth?
it is the growth that expands a country’s production possibilities disproportionately in that country’s export sector
what is the import-biased growth?
it is the growth that expands a country’s production possibilities disproportionately in that country’s import sector
export-biased growth
reduced a country’s terms of trade, reducing its welfare and increasing the welfare of foreign contries
what is a tariff
it is a tax levied when a good is imported
import biased growth
it increases a country’s terms of trade, increasing its welfare and decreasing the welfare of foreign contries
what are the types of tariffs
-specific tariff
- ad valorem tariff
what is an import demand curve?
it is the difference between the quantity that home consumers demand minus the quantity that home consumers supply at each price
what is a export supply curve?
it is the difference between the quantity that foreign producers supply minus the quantity that foreign consumers demand at each price
what is consumer surplus?
it measures the amount that consumers gain from purchases by computing the difference in the price actually paid and their willingness to pay for each unit consumed
what is producer surplus
measures the amount that producers gain from sales by computing the difference in the price received from the minimum price at which they are willing to sell
what is a specific subsidy
it is a payment per unit exported
what is an ad valorem subsidy?
it is a payment as a proportion of the value exported
what is an import quota
it is a restriction on the quantity of a good that may be imported
what do we call the revenue from selling imports at high prices which will be given to quota license holders
quota rents
what is a voluntary export restraint
it works like an import quota except that the quota is imposed by the exporting country rather than the importing country
what is local content requirement
it is a regulation that requires a specified fraction of a final good to be produced domestically
what are export subsidies
a subsidized loan to exporters
what is govermnet procurement
they are government agencies that are obligated to purchase from home suppliers, even when they charge higher prices compared to foreign suppliers
what are Bureaucratic regulations?
safety, health, quality, or customs regulations can act as a form of protection and trade restriction
what does free trade allow firms or industry to take advantage of?
economies of scale
what does free trade provide?
competition and opportunities for innovation
how does world trade organization negotiations address trade restricitons?
in three ways
1) Reducing tariff rates
2) binding tariff rates
3) eliminating non-tariff barries
what agreements are based on the WTO
- general agreement on tariffs and trade
- general agreement o tariffs and services
- agreement on trade-related aspects of intellectual property
what is the dispute settlement procedure?
a formal procedure where countries in a trade dispute can bring their case to a panel of WTO experts to rule upon
what are preferential trading agreemetns
they are trade agreement between countries in which they lower tariffs for each other but not for the rest of the world
what are the two types of preferential trading agreements in which tariff rates are set at or near zero
—a free trade area- an agreement that allows free trade among members, but each member can have its own trade policy towards non-member countries
— a custom union - an agreement that allows free trade among member and require a common external trade policy towards non-member countries
