Microecon chapter 15 Flashcards
The country with whom Canada has the msot of trade in terms of exports and imports
USA
Canada export what products (at 25%)
energy
Industrial goods and materials
What is NAFTA
North American Free trade agreement ( an agreement between USA, Mexico and Canada)
An agreement on trade between Canada and EU is called
CETA (comprehensive economic and trade agreement)
Who is more open to trade large economies or small economies
Small economies, because they have resources themselves
Which sector has more part of GDP: manufacture or service
Service
As incomes
grow, the demand for health, education, leisure, financial services, tourism, etc., dominates the
demand for physical products.
If services have more GDP, do they have the higher prevalence in interrnational trade?
Trade in goods—
merchandise trade—remains dominant, partly because many countries import goods, add some
value, and re-export them.
what has the largest proportion of Canadian imports
Motor vehicles and parts (19%)
Consumer goods (22%)
the opportunity cost is
The opportunity cost of a good is the quantity of another good or service given up in
order to have one more unit of the good in question
Trade issues for the world
- Agricultural Protection
- Protects developed economy farmers, hurts farmers from LDCs
- Globalization: Outsourcing of manufactures to LDCs
- Has the West lost good jobs due to outsourcing? Or is the loss of manufacturing jobs due to technological change? Or structural change in the economy?
- Trade or Aid: Do trade barriers offset aid to LDCs?
What is the principle of comparative advantage
Principle of comparative advantage states that even if one country has an absolute
advantage in producing both goods, gains to specialization and trade still materialize,
provided the opportunity cost of producing the goods differs between economies.
A no-trade state is called
Autarky
Who has the rcomparative advantage?
Canada
The opportunity cost of a unit of V
in Canada is 7F (the slope of Canada’s PPF is 5/35 = 1/7). In the US the opportunity cost of
one unit of V is 5F (slope is 8/40 = 1/5).
What is an absolute advantage and who has it in this situation
•If one economy uses fewer inputs than another economy to produce a good or service, then that economy has an absolute advantage in its production
The opportunity cost of a unit of V
in Canada is 7F (the slope of Canada’s PPF is 5/35 = 1/7). In the US the opportunity cost of
one unit of V is 5F (slope is 8/40 = 1/5). In this set-up the US is more efficient in producing
V than F relative to Canada, as reflected by the opportunity costs.
What is terms of trade
the rate at which
the two goods will trade post-specialization.
Who should specialize in what here
We now permit each economy to specialize in producing where it has a comparative advantage.
So Canada specializes completely by producing 35F and the US produces 8V
Consumption possibility frontier shows
what an economy can consume after production specialization and trade.
What is free trade equilibrium
At a price of $10, Canadian consumers wish to buy QD litres, and domestic producers
wish to supply QS litres. The gap between domestic supply QS and domestic demand QD is filled
by imports
Show on the graph where is tarif revenue,the deidweght loss , total loss in consumer surplus, increased surplus for domestic suppliers
Of the total loss
in consumer surplus (LFGJ), tariff revenue equals EFHI, increased surplus
for domestic suppliers equals LECJ, and the deadweight loss is therefore
the sum of the triangular areas CEI and HFG.
What will happen to the market if the supplier is given a subsidy
A shift of supply curve downward
(Qs-Qs’)* 1/2* (p-p’)->DWL on supply side
no DWL on demand side
How the graph of quoata on imported products wuld look like
At the world price P, plus a quota, the supply curve becomes RCUV. This
has three segments: (i) domestic suppliers who can supply below P; (ii)
quota; and (iii) domestic suppliers who can only supply at a price above P.
The quota equilibrium is at T, with price Pdom and quantity Q′D; the freetrade
equilibrium is at G. Of the amount Q′D, quota is supplied by foreign
suppliers and the remainder by domestic suppliers. The quota increases the
price in the domestic market.
First it has the segment RC, reflecting the fact that domestic suppliers
are competitive with world suppliers up to the amount C. Beyond this output, world suppliers
can supply at a price of P, whereas domestic suppliers cannot compete at this price. Therefore
the supply curve becomes horizontal, but only up to the amount permitted under the quota—the
quantity CU corresponding to quota. Beyond this amount, international supply is not permitted
and therefore additional amounts are supplied by the (higher cost) domestic suppliers
