Midterm 1

Question 1

Trade

Answer 1

Exchange of goods and services across boarders

Question 2

Imports

Answer 2

Domestic purchase of foreign produced goods and services

Question 3

Exports

Answer 3

Sale of domestically produced goods and services

Question 4

Free Trade

Answer 4

No artificial barriers to the exchange of goods and serves national markets

Question 5

Absolute Advantage

Answer 5

Producing a good more efficiently than any other country

Question 6

Comparative Advantage

Answer 6

Producing a good at a lower opportunity cost than any other country

Question 7

Antilumping Duty

Answer 7

Special tariff on injurious imports priced at less than normal value

Question 8

Countering Duty

Answer 8

Special tariff to offset lower price of imports subsidized by a foreign country

Question 9

Non-Tariff Barriers

Answer 9

• Import quotas
• “Voluntary” export restraints
• Import licensing requirement
• Technical standards
• Health ad bio-safety rules

Question 10

Public Good

Answer 10

• Non-excludable: Can’t prevent other from using it
• Non-rival: Doesn’t diminish if others use it
• Positive Externalities: Benefits even those who don’t contribute

Question 11

Collective Action Theory

Answer 11

Groups can successfully overcome their collective action problem and lobby for protection if:

• They are a small group
• Geographically connected
• Similar interest
• Opportunity to meet and coordinate
• They have a lot to gain

Question 12

Factor

Answer 12

A resource used for production (labor, capital, and land)

Question 13

Trad Patters (Factors Model Hypothesis)

Answer 13

1. ) A country has comparative advantage in producing products that intensely uses relatively abundant factors
2. ) A country exports products that use its relatively abundant factors and imports
3. ) This lets us predict which products a country will export/import and which countries it will trade with most

Question 14

Income Effects of Trade

Answer 14

Trade makes income to relatively scare factors fall and income to relatively abundant factors increase

Question 15

Factor Price Equalization

Answer 15

Trade makes income levels of a given factor converge across countries overtime

Question 16

Policy Preferences

Answer 16

Owners of relatively abundant factors should support free trade
Owners of relatively scarce factors should support trade protection

Question 17

Political Parties

Answer 17

Assumption: Political parties are coalitions among factor owners

• Left -> laborers
• Right -> Owners of capital and land (industrialist)

Question 18

4 Big Things from the Factors Model

Answer 18

1. ) Tells us what each country should trade
2. ) Tells us who each country should trade with
3. ) Tells us who is gaining/losing from trade in each country
4. ) Tells us what partisan division we should see

Question 19

Export Oriented

Answer 19

Rely on relatively abundant factors -> should prefer free-trade

Question 20

Import Competing

Answer 20

Rely on relatively scarce factors -> Should prefer trade protection

Question 21

Sectors Model Predictions

Answer 21

1. ) Import competing industries prefer protection
2. ) Export oriented industries prefer free trade
3. ) Labor, unions, and management in a given industry share the same preferences about trade
4. ) Country Label Prediction: When the economy becomes more export dependent, a government is more likely to liberate trade policy
5. ) Partner-level Prediction: There is less domestic opposition to free trade arrangement with partners to a country that exports more and imports less

Question 22

Collective Action Theory (summary)

Answer 22

1. ) Producers dominate
2. ) Predicts more protection than actually occurs
3. ) No politics

Question 23

Factors Model (summary)

Answer 23

1. ) Comparative advantage is key
2. ) Has politics (left = labor, right = industrialist)
3. ) Overlooks differences in sectors

Question 24

Sectors Model (summary)

Answer 24

1. ) Doesn’t explain comparative advantage
2. ) Builds on factors model and explains differences between factors
3. ) More applicants when there are high adjustment costs

Question 25

Democracy

Answer 25

A political system in which candidates compete for political office through frequent, fair elections in which a sizable portion of the adult population can vote
- Send credible signals and credible commitments

Question 26

Democracy and Trade

Answer 26

Democracy shifts representation to different interest within a country

Question 27

Economic Power

Answer 27

The ability to set the terms of trade

Question 28

Monopsony

Answer 28

A situation in which there is only one buyer of a good

Question 29

Price Setter

Answer 29

The entity or entities that set the price of the good

Question 30

Elasticity of Demand

Answer 30

How much your country’s consumers purchases of the good will be reduced if the good’s price goes up

Question 31

Embargo

Answer 31

An official ban on trade or other commercial activity with a particular country

Question 32

National Security

Answer 32

concern for the survival of the state, protection of the country from foreign threats

Question 33

Externality

Answer 33

Costs or benefits of one country’s choices for otherS

Question 34

Anarchy

Answer 34

The absence of a national government able to make and enforce inter-state agreements

Question 35

General Agreement on Tariffs and Trade (GATT)

Answer 35

1. ) Liberalization: Lowering tariffs and other non-tariff barriers
2. ) Non-discriminatroy: Everyone is treated the same (sort of)
3. ) Reciprocity: Do unto others as they have done unto you
4. ) Safeguards: (Temporary) escape clause

Question 36

Free Trade Agreements

Answer 36

Governments eliminate tariffs on others members goods, but relative independent tariffs on non-memebrs.

Question 37

Customs Union

Answer 37

Members eliminate all tariffs on trade between members and impose a common tariff on goods entering from non-members