Inr quiz 2 Flashcards
Free Trade is mutually beneficial, So why do Barries to trade exist?
Trade is a technology which means there are some people who will lose their jobs while others benefit. Trade barriers exist to protect domestic producers by redistributing income from consumers and foreign producers to domestic producers.
what are 4 ways trade leads to increased wealth?
- Opportunities to sell goods elsewhere
- New larger markets to sell more or new goods
- More efficient
- Cheaper products
What two ideas did Adam smith highlight for how trade increases productivity, which increased wealth?
Specialization
division of Labor
In the context of international trade, what is the absolute advantage?
The ability of a country or firm to produce more of a particular good or service than other countries or firms can produce with the same amount of effort and resources.
In the contact of international trade, What is comparative advantage?
The idea that countries should specialize in their economic production based on the opportunities costs of producing various goods.
What is opportunity cost?
?
What are the four factors of production that we discussed in class?
Land
Labor
Capital
Human capital
What does huckster Ohlin model tell us about who exports what and who imports what?
the model states that relative endowments determine the comparative. Industrial country are rich in capital and skilled labor and should therefore export goods that make intensive use of these endowments like capital intensive goods. If a country is abundant in labor it should export goods that are labor intentive.
Why do countries restrict trade? what is the primary political problem with trade?
trade is a technology, some people win and some people lose. countries restrict trade to protect domestic actors. trade barriers redistribute income from consumers and foreign producers to the domestic producers.
Trade barriers redistribute income from who to whom?
Trade barriers redistribute income from consumers and foreign producers to domestic producers
what is protectionism?
The use of specific measures to shield domestic producers from imports. They are trade barriers
What are 5 types of trade barriers? be able to define and explain each type.
Tariff: Tax on imports
Quotas: A law that sets limits on the amount of a specific good that can be imported
Subsidies: government incentive to the domestic producers of a good (take away taxes, grants)
Prohibitions: not allowing any imports of a certain good
Non-tariff barriers: barriers that are not taxes
What type of trade barriers have greatly increased in the last two decades?
Non- tariff barriers
What does the Stolper-Samuelson theory tell us about preferences on trade?
An individuals trade preferences are based on if they gain or lose from trade. The people who benefit from trade are the ones that have the factor that is abundant and being exported.
factor based preferences (land, labor, capital)
What does the Ricardo-diner theory tell us about preferences on trade?
An individual’s preferences are based on the industry they work in. domestic preferences in in trade policy are based on specific factors.
Why is the cost of sugar higher in the USA? What major social interaction explains it?
The cost of sugar is higher in the USA due to protectionism. The USA produces sugar and the USA keeps the prices higher to protect the jobs of people in the sugar industry.
Which type of political institution will typically be more supportive of free trade?
Democracies because trade increases aggregate wealth. Autocracies are afraid that increasing aggregate wealth is a threat to their power?
What is the embedded liberal compromise?
Compensation for the losers of trade from the winners
- job retraining programs
- relocation assistance
- community development assistance
- grow human capital
which social interaction challenge did we use to explain how many countries approach the making of international trade policy?
Prisoners Dilemma. Everyone wants to have consumers to sell to but no one wants others to have access to their consumers.
How did GATT lower trade barriers?
Little by little:
- Norms of reciprocity
-national safeguards
-negotiating rounds and adressed different issues or sectors
What is the most favored nation status
Norm of reciprocity. the smallest level of tariffs a country gives to one country, they will give any other country the same level if they enter the club/agreement
What is the primary different between GATT and the World Trade Organization
The WTO has enforcement capabilities. they have a court which can enforce penalties.
What did Autor find regarding manufacturing employment in the U.S
USA manufacturing employment declined after China got WTO membership
What did Autor suggest was an important factor affecting the U.S. presidential election of 2016?
Chinas huge import growth has a major effect on who won the US 2016 election. The counter factual claimed that if china’s import growth was 50% smaller than there would have been less republican votes and the electoral college would have been different, resulting in trump losing.
If countries want investment so greatly, why are relations between foreign investors and countries so hostile and politically controversial.
Actors want money but don’t want the terms requires of them to have money such as the interest rates
What started the 2007 financial crisis in Europe?
Credit crunch hit USA housing market which led to the US housing bubble busting, this then spread to Europe.
The EU and the IMF agreed to bail out Greece in 2008. What did they ask for in return for their loans?
The greeks had to implement austerity measures that would reduce their budget deficit. These austerity measures are very unpopular because they include policies such as reducing government spending, benfits, and increases taxes. the austerity measures are very unpopular with citizens
