Module 6 Flashcards
What refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country?
Free Trade
What are the seven main instruments of trade policy?
LAVA-SIT
- Local content requirements
- Administrative policies
- Voluntary export restraints
- Antidumping policies
- Subsidies
- Import quotas
- Tariffs
What do you call a tax levied on imports that effectively raises the cost of imported products relative to domestic products.
Tariffs
What are levied as a fixed charge for each unit of a good imported?
Specific Tariffs
What are are levied as a proportion of the value of the imported good
Ad Valorem Tariffs
What is a government payment to a domestic producer?
Subsidies
Why do governments impose tariffs?
– increase government revenues
– provide protection to domestic producers against
foreign competitors
– force consumers to pay more for certain imports
What are pro-producer and anti-consumer, and reduce the overall efficiency of the world economy?
Tariffs
How do subsidies help domestic producers?
By competing against low-cost foreign imports and gaining export markets
What is a direct restriction on the quantity of some good that may be imported into a country?
Import Quota
What are a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota?
Tariff Rate Quota
What are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government?
Voluntary Export Restraints
What is the extra profit that producers make when supply is artificially limited by an import quota?
Quota Rent
Who benefits from import quotas and voluntary
export restraints?
domestic producers because it limits import competition, and raise the prices of imported goods for consumers
What demands that some specific fraction of a good be produced domestically?
Local Content Requirement
What benefits domestic producers and jobs, but makes consumers face higher prices?
Local Content Requirement
What are bureaucratic rules that are designed to make it difficult for imports to enter a country?
Administrative Trade Policies
Administrative policies hurt consumers by what?
denying access to possibly superior foreign products
What do you call of selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value?
Dumping
What can be a way for firms to unload excess production
in foreign markets?
Dumping
How does dumping may be predatory behavior?
By driving indigenous competitors out of that market, and later raising prices and earning substantial profits
What are designed to punish foreign firms that engage in dumping?
Antidumping Policies
Antidumping policies’ goal is to protect domestic producers from what?
Unfair foreign competition
What are the two types of arguments about why do governments intervene in trade?
- Political arguments
- Economic arguments
Which type of argument means protecting the interests of
certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)?
Political Arguments
Which type of argument means boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)?
Economic Arguments
What are included in the economic arguments for government intervention in international trade?
- Infant Industry Argument
- Strategic Trade Policy
Which argues that an industry should be protected until it can develop and be viable and competitive internationally
Infant Industry Argument
Critics of which argument argues that it is useless unless it makes the industry more
efficient?
Infant Industry Argument
Critics of which argument argues that if a country has the potential to develop a viable competitive position, its firms should be capable of raising necessary funds
Infant Industry Argument
Which economic argument means there may be important first mover advantages, governments can help firms from their countries attain these advantages?
Strategic Trade Policy
Which economic argument means that governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage?
Strategic Trade Policy
What are the two situations where restrictions on trade may be inappropriate?
– Retaliation
– Domestic Policies
Strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are what kind of policies?
beggar-thy-neighbor policies that boost national income at the expense of other countries
In its first fifty years, the international trading framework that has evolved to govern world trade is known as what?
General Agreement on Tariffs and Trade (GATT)
