Final Exam Flashcards
Partial equilibrium
Condition of economic equilibrium which takes into consideration only a part of the market, ceteris paribus, to attain equilibrium.
Customs Union
Type of trade bloc which is composed of a free trade area with a common external tariff.
Common Market
Type of trade bloc which is composed of a common external tariff And free flow of labor and capital
FDC and United States Department of Justice
Leaders in international antitrust enforcement
Why do Cartels Occur?
- Can make legal cartels (OPEC)
Still legal in some countries - Sometimes it is worth the risk (potential penalties are smaller than gains
- Tacit collusion (collude without sitting down and agreeing.
- Biggest player sets the price and others follow
Cartel
A group of firms who have agreed explicitly to coordinate their activities to
raise market price or decrease market output.
Tacit collusion
mutual understanding without overt communication
“conscious parallelism”
Explicit conspiracy
overt communication among firms
Price fixing agreement
Formal cartel
Facilitating practices
Things that help collusion
“Most Favored Costumer” clauses or price matching polcies
- Reduces seller’s incentives to cut prices
- Makes monitoring other’s prices easier
Three Challenges for a cartel
- to coordinate participants’ decisions on pricing and/or production.
- to monitor behavior by participants(to detect cheating)
- to prevent or deter non‐member entry, or expansion of production/capacity by
non‐members
Gross Domestic Product (GDP)
GDP measures the total value of all goods and services produced by a country during a year.
GDP per Capita
indicate the average wellbeing of individuals i a country
Trade Surplus
When the value of exports exceeds the value of imports
Trade deficit
When the value of exports falls short of the value of imports
Bretton Woods Conference 1994
Established the IMF and World Bank
- No restrictions or controls on the
exchange of currencies for transactions on the current account.
- Currency controls or restrictions were allowed for transactions recorded
on the financial accounts (capital controls)
International Monetary Fund
The IMF was created to help stabilize exchange rates in the fixed
exchange rate system
Gross National Product (GNP)
- Market value of all the products and services produced in one year by labour and property supplied by the citizens of a country.
- GNP differs from GDP, because it adds
in returns to national factors of production located overseas, and subtracts off returns to foreign factors of production located within
national borders
Weaknesses of GDP as an economic measure.
- ignores the value of goods and services left over from previous years
- Fails to recognize the size of the population it must support.
- gives no account of how the goods and services produced by the economy are distributed among members of the economy
- Overstate growth or standard of living.
- Does not account for externalities
- Ignores value of consumption
GDP is the sum of . . .
- Personal consumption expenditures (C)
- Private investment expenditures (I)
- Government Consumption Expenditures (G)
- Expenditures on exports (EX) minus expenditures on imports (IM)
GDP = C + I + G + EX - IM
Role of income in National Income Identity (GDP?)
- Imports are subtracted in the national income identity because they appear as hidden elements in consumption, investment, government, and exports
- If not subtracted, overcounting may occur
Balance of Payments Account (BoP)
- Record of all international transactions
- Consists of current account and financial account
Component of BoP
- Exports and Imports of goods (G)
- Exports and imports of services (S)
- Income payments and receipts (IPR)
- Unilateral Transfers (UT)
GDP vs GNP
GDP includes only exports and imports of goods and services, implying that GDP excludes income payments and receipts and unilateral transfers
Financial Accounts Balance
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