Econ 101: Chapter 9 Flashcards
Import
to buy goods or services from foreign sellers.
Export
to sell goods or services to foreign buyers.
you can get a better deal by trading with foreigners because of…
comparative advantage.
Geography should be…
irrelevant when applying the idea of assigning tasks to those with the lowest opportunity cost.
Export goods when the…
opportunity cost is low (comparative advantage)
Import goods when…
opportunity costs are high (everything else).
trade costs
the extra costs incurred as a result of buying or selling internationally, rather than domestically.
Sources of comparative advantage:
abundant inputs, specialized skills, and mass production.
Abundant inputs:
do you have more of something relative to your trading partners?
Specialized skills:
do you have unique skills, production methods, or expertise?
Productivity increases with experience.
mass production:
economies of scale – producing more means having more bargaining power when purchasing inputs.
can have very specialized and efficient production lines.
world supply
the total quantity of a good produced by all manufacturers in the world at each price.
world demand
the total quantity of a good demanded across all buyers in every country.
world price
the price that a good sells for in the global market.
Canadian buyers and sellers are…
price takers on the world market
domestic demand curve
shows the quantity of a good that all domestic consumers added together plan to buy, at each price.
domestic supply curve
shows the quantity of a good that all domestic suppliers added together plan to sell, at each price.
Imports only occur if…
the world price is below domestic price.
Imports cause…
domestic suppliers to decrease quantity supplied, and domestic buyers to increase quantity demanded.
For traded goods…
the world price = equilibrium price.
The gap between domestic supply and domestic demand is filled by…
exports or imports (depends on what the world price is).
Imports lead to…
lower prices.
Imports raise…
total economic surplus. Consumer surplus increases, producer surplus decreases.
Exports only occur when…
the world price is above the domestic price.
Exports cause…
domestic suppliers to increase the quantity supplied, and domestic buyers to decrease the quantity demanded.
Exports lead to…
higher prices.
Exports raise…
total economic surplus. Consumer surplus decreases, and producer surplus increases.
Import competing businesses
produce goods and services which are also imported into the country.
Export industries
produce goods and services which are exported from
the country
import dependent businesses
rely on imports of cheap raw materials
5 arguments for limiting free trade:
- National security
- Protect infant industries
- Anti-dumping laws
- Skirting regulations
- Job losses
National security
we should produce important resources ourselves, in case relations with other countries sour.
Protect infant industries
we should shield infant industries from foreign competition, to help them grow.
anti-dumping laws.
prevent unfair competition.
sometimes foreign companies dump very cheap goods into Canada, to drive Canadian competitors out of business.
skirting regulations
trade should not be a way for companies to skirt regulations like minimum wage, safety standards, and environmental standards.
job losses
reducing foreign trade can help preserve job losses in import-competing sectors.
May have side effect of impacting import-dependent and export businesses.
tariffs
taxes on imported goods; increases trade costs.
tariffs result in..
higher quantity supplied by domestic suppliers, lower quantity demanded by domestic buyers.
Also generates government tax revenue.
Tariffs reduce…
total economic surplus.
Red tape
includes pre-arrival approvals, port handling, customs, more customs, etc.
Adds to trade costs.
red tape has…
the same effect as a tariff, but it doesn’t raise government revenue.
import quota
a limit on the quantity of a good that can be imported.
import quotas only raise gov’t revenue if…
it auctions off the scarce import licenses.
Exchange rate manipulation
changes the price of your goods in foreign markets.
bilateral deals
two way
World trade organization (WTO)
a forum for global agreements to reduce trade barriers.
Globalization
the increasing economic, political, and cultural integration of different countries.
labour is…
embodied in the goods that are traded between countries.
Deadweight loss occurs…
when there are import tariffs and import quotas.
Also when a free trade nation reverts back to no-trade.
productivity
determines average wages.
