economic globalization

Question 1

why is trade so good?

Answer 1

by not engaging in trade we’re leaving money lying in the ground (DWL)

Question 2

theory of absolute advantage

Answer 2

use of fewer products to produce a good

Question 3

comparative advantage- opportunity costs

Answer 3

greatest absolute advantage

• what is messi giving up by not playing football
• what netherlands is giving up by growing grapes

Question 4

messi and pastry maker example.

Answer 4

even though he has an absolute advantage in both, he should play football cause the opportunity cost of not doing it is very high.

Question 5

types of trade protection (3)

Answer 5

tariffs, quotas, non tarriff barriers

Question 6

tariff

Answer 6

tax on imported goods (China US tire)

Question 7

quotas

Answer 7

a limit on the amount of goods that can enter the country (indonesia sugar(

Question 8

non tariff barriers

Answer 8

lowers price of the domestic one’s to give a comparative advantage to its own industries (like giving subsidies, insurance or laws to protect regional products)

Question 9

effect of trade

Answer 9

domestic production was high when we opened to imports. that’s gonna lower the price of what domestic farmers are gonna sell.
farmers sad, consumers happy

Question 10

effect of tariff + its 2 areas of DWL

Answer 10

domestic production increases
government collects tax money from farmers

DWL- wasted production of something that could have been cheaper and the money could have been in another industry, what the consumers didn’t buy because it was more expensive.

Question 11

gravity model of trade

Answer 11

bilateral trade is about population, distance and size
rich populous countries trade more
only predicted flows not what’s being traded

Question 12

heckscher ohlin trade theory and 4 factors of production

Answer 12

scarcity and abundance of production determine what’s traded.
factors of production
1. land
2. skilled labor
3. unskilled labor
4. capital
- netherlands makes software, China makes cheap labor

Question 13

what does the heckscher ohlin theory fail to explain

Answer 13

why do US and Europe trade alot, they have the same factors of production

Question 14

new trade theory (intra industry trade)

Answer 14

based on economies of scale (the fact that doing something in large quantities makes it cheaper).

so, each country picks something specific (that requires large scale production), and then they trade that. because their market is the whole world they can make very specific things. - us specializes in trucks, germany in cars. and because they do it alot and cheaper, they trade

Question 15

what is old trade theory based on ?

Answer 15

comparative advantage

Question 16

embedded liberalism

Answer 16

because workers are poor because of cheap labor abroad, there’s a welfare state.