International Trade Slides

Question 1

Trade is mutually beneficial

Answer 1

• New markets = greater expansion
• more efficiency = improved production
• cheaper products = freed-up wealth
• division of labor = concentration on what you do best
• specialization = making using of your advantages, improves efficiency

Question 2

absolute advantage vs. comparative advantage

Answer 2

compared to other countries vs. compared to other products

Question 3

Determinants of comparative advantage

Answer 3

• one’s inherent endowments

- endowments of one’s trade partners

Question 4

Endowments/factors of production

Answer 4

• land (farming, natural resources)
• labor (skilled/unskilled)
• Capital (human, financial assets like tech and machinery)

Question 5

tariffs

Answer 5

taxes on imports

Question 6

nontariff barriers

Answer 6

• quotas: limits on quantities/volumes
• health and safety standards
• other penalties: antidumping

Question 7

Subsidies

Answer 7

government payments to producers

Question 8

Prohibitions

Answer 8

• outright prohibition (ex. military tech deemed sensitive to national security)

Question 9

collective action

Answer 9

smaller groups enjoy organizational advantages

• producers: few in number and powerful in finances
• consumers: numerous and disorganized

Question 10

Political institutions affect power over trade policy

Answer 10

• democracies are less protectionist than dictatorships (democracies represent broad group interests like consumers while dictatorships represent narrow restrictive interests like a specific industry

Question 11

overall, trade liberalization produces more ______ than _______ for a country

Answer 11

benefits, losses

Question 12

trade produces ______ and ______

Answer 12

losers and winners

Question 13

Compensation and trade policy examples

Answer 13

• trade adjustment assistance

- training programs for laid-off workers

Question 14

Global Trade Agreements (GATT)

Answer 14

• norms of reciprocity and national safeguards
• negotiating rounds addressed different issues or sectors
• replaced by the World Trade Organization in 1994

Question 15

World Trade Organization (WTO)

Answer 15

• replaced GATT
• larger membership, covering about 80% of all world trade
• WTO can enforce its provisions
• can authorize actions for violators of rules
• monitors compliance
• goal is for complete liberalization of all trade

Question 16

criticisms of the WTO

Answer 16

• favors western countries and their sectors
• favors international corporations over other interests
• rules tend to focus on trade itself and exclude other concern on environment, health, safety, etc.