Final

Question 1

Slope of the PPF

Answer 1

amount of production of one good that must be given up to obtain one additional unit of the other good

Question 2

Slope of the CPF

Answer 2

the amount of consumption of one good that must be given up to obtain one additional unit of the other good

Question 3

Gains from exchange

Answer 3

gains derived from being able to exchange the autarky production quantities on the world market; consumption gains

Question 4

gains from specialization

Answer 4

gains derived from adapting domestic production to world market prices; production gains

Question 5

Heckscher-Ohlin Theorem

Answer 5

a country will have comparative advantage in and export the commodity that uses its relatively abundant factor relatively intensively

Question 6

Factor Price Equalization Theorem

Answer 6

In equilibrium, with both countries facing the same relative (and absolute) product prices, with both having the same technology, and with constant returns to scale, relative (and absolute) factor prices will be equalized

Question 7

Stolper-Samuelson Theorem

Answer 7

the real income of owners of abundant factor increases with trade and the real income of owners of scarce factor falls

Question 8

Specific tariff

Answer 8

a monetary sum that must be paid to import a physical unit of a product

Question 9

ad-valorem tariff

Answer 9

a percentage of the monetary value of 1 unit of a product that must be paid to import it

Question 10

import subsidy

Answer 10

negative import tariff

Question 11

export tariff/subsidy

Answer 11

levied/given on home-produced goods that are destined for export

Question 12

Preferential duties

Answer 12

products from certain countries are subject to lower tariffs than the normal tariff rate (Generalized system of preferences for developing countries)

Question 13

Most favored nation treatment/normal trade relations

Answer 13

if country A grants country B the status of most-favored nation, it means that B’s exports will face tariffs that re no higher (nor lower) than those applied to any other MFN partner

Question 14

unweighted-average tariff rate

Answer 14

does not account for relative importance of goods

Question 15

weighted-average tariff rate

Answer 15

gives greater weight to lower-tariff goods because more of these are imported; no weight to goods with prohibitive tariff

Question 16

Effective Rate of Protection (ERP)

Answer 16

(value added under protection - value added with free trade)/value added with free trade

Question 17

import quotas

Answer 17

a government agency allocates the rights to import; limits the number of goods for a given period of time

Question 18

“voluntary” export restraints (VER)

Answer 18

foreign suppliers agree to “voluntary” refrain from sending some exports

Question 19

government procurement provisions

Answer 19

restriction on purchasing foreign products by the domestic government agencies

Question 20

domestic content provisions

Answer 20

a given percentage of the value added of a good must consist of domestic components or labor

Question 21

administrative classification

Answer 21

different tariffs to different product categories and leeway for customs officials to decide on classification

Question 22

domestic policies affecting trade

Answer 22

health, environment, and safety standards; packaging and labeling requirements; inconsistent treatment of intellectual property rights; subsidies to domestic firms

Question 23

trade-related investment measures (TRIMs)

Answer 23

A country can invest in another country’s industry but have to export a high % of what is produced

Question 24

Restrictions on services trade (behind-the-border)

Answer 24

Financial services regulated by foreign direct investment restrictions

Question 25

equivalent subsidy

Answer 25

producers are subsidized to produce the same amount as they would under a tariff

Question 26

infant industry argument

Answer 26

there is a potential comparative advantage that cannot be realized in the short run due to foreign competition. Given a temporary tariff, domestic industry is able to mature and achieve a reduction in unit cost by learning-by-doing and/or may be able to overcome its financial bottleneck

Question 27

strategic trade policy

Answer 27

use protectionism as a way to capture the domestic market in a way that allows domestic firms to be more competitive internationally through economies of scale. protecting domestic markets would allow the firm to increase production and decrease price both domestically and internationally

Question 28

Sporadic dumping

Answer 28

government buys excess supply domestically and then dumps it on international markets at a lower price, distorts the market

Question 29

persistent dumping

Answer 29

selling at a price thats below the domestic price

Question 30

predatory dumping

Answer 30

selling at a price below the market price in order to destroy an industry and later raise prices

Question 31

Free trade area (FTA)

Answer 31

no tariffs between the members; each member sets its own tariffs on outside members; outside countries will use a transshipment strategy if no rules of origin exist

Question 32

customs union

Answer 32

free trade area + common external trade policy

Question 33

common market

Answer 33

customs union + free factor movements

Question 34

monetary/economic union

Answer 34

common markets + common currency, common institutions, coordination of economic policy

Question 35

trade creation

Answer 35

shift from (high-cost) domestic production to (low-cost) CU member’s production

Question 36

trade diversion

Answer 36

shift from (low-cost) nonmember’s production to (high-cost) member’s production