Final Flashcards
Slope of the PPF
amount of production of one good that must be given up to obtain one additional unit of the other good
Slope of the CPF
the amount of consumption of one good that must be given up to obtain one additional unit of the other good
Gains from exchange
gains derived from being able to exchange the autarky production quantities on the world market; consumption gains
gains from specialization
gains derived from adapting domestic production to world market prices; production gains
Heckscher-Ohlin Theorem
a country will have comparative advantage in and export the commodity that uses its relatively abundant factor relatively intensively
Factor Price Equalization Theorem
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
Stolper-Samuelson Theorem
the real income of owners of abundant factor increases with trade and the real income of owners of scarce factor falls
Specific tariff
a monetary sum that must be paid to import a physical unit of a product
ad-valorem tariff
a percentage of the monetary value of 1 unit of a product that must be paid to import it
import subsidy
negative import tariff
export tariff/subsidy
levied/given on home-produced goods that are destined for export
Preferential duties
products from certain countries are subject to lower tariffs than the normal tariff rate (Generalized system of preferences for developing countries)
Most favored nation treatment/normal trade relations
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
unweighted-average tariff rate
does not account for relative importance of goods
weighted-average tariff rate
gives greater weight to lower-tariff goods because more of these are imported; no weight to goods with prohibitive tariff
Effective Rate of Protection (ERP)
(value added under protection - value added with free trade)/value added with free trade
import quotas
a government agency allocates the rights to import; limits the number of goods for a given period of time
“voluntary” export restraints (VER)
foreign suppliers agree to “voluntary” refrain from sending some exports
government procurement provisions
restriction on purchasing foreign products by the domestic government agencies
domestic content provisions
a given percentage of the value added of a good must consist of domestic components or labor
administrative classification
different tariffs to different product categories and leeway for customs officials to decide on classification
domestic policies affecting trade
health, environment, and safety standards; packaging and labeling requirements; inconsistent treatment of intellectual property rights; subsidies to domestic firms
trade-related investment measures (TRIMs)
A country can invest in another country’s industry but have to export a high % of what is produced
Restrictions on services trade (behind-the-border)
Financial services regulated by foreign direct investment restrictions
equivalent subsidy
producers are subsidized to produce the same amount as they would under a tariff
infant industry argument
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
strategic trade policy
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
Sporadic dumping
government buys excess supply domestically and then dumps it on international markets at a lower price, distorts the market
persistent dumping
selling at a price thats below the domestic price
predatory dumping
selling at a price below the market price in order to destroy an industry and later raise prices
Free trade area (FTA)
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
customs union
free trade area + common external trade policy
common market
customs union + free factor movements
monetary/economic union
common markets + common currency, common institutions, coordination of economic policy
trade creation
shift from (high-cost) domestic production to (low-cost) CU member’s production
trade diversion
shift from (low-cost) nonmember’s production to (high-cost) member’s production
