Section 12: Trade and Environment

Question 1

Define Free Trade

Answer 1

International trade left to its natural course (no tariffs, quotas, other restrictions)

Question 2

Define Protectionism

Answer 2

An economic policy of restraining trade between nations to protect domestic markets

Question 3

Define Globalization

Answer 3

The global integration of national economies into one global economy, by free trade

Question 4

What is absolute advantage?

Answer 4

With the same level of inputs, a country can produce more of a good than another country

Question 5

What is comparative advantage?

Answer 5

When the opportunity cost of producing something is less for one country relative to its competitors

Question 6

Can a country have a comparative advantage, even if it does not have an absolute advantage?

Answer 6

Yes

Question 7

What are “gains from trade” in economics?

Answer 7

Specialization of production for a comparative advantage will result in trades that are mutually beneficial and increases the value of total output

Question 8

List some limitations of “gains from trade”

Answer 8

• Ignores natural resources
• Ignores transportation costs
• Assumes no externalities
• Do residents want to specialize? (changing occupations)
• Does specialization make nations dependent on others
• Differences in policies could lead to more emissions from heavily polluting countries

Question 9

Do imports increase producer or consumer surplus?

Answer 9

Consumer

Question 10

Do exports increase producer or consumer surplus?

Answer 10

Producer

Question 11

Provide an argument that is for free trade

Answer 11

Free trade increases economic growth, which can provide the resources for environmental clean-up and protection based on the Environmental Kuznets Curve

Question 12

Provide an argument that is against free trade

Answer 12

Free trade allows profit-maximizing corporations more capital, which prevents local environmental protection and capital formation

Question 13

Explain the 3 effects of increased trade

Answer 13

1. Scale effect: increasing economic activity also increases energy use and GHG emissions
2. Composition effect: A country produces more of their comparative advantage, and leads to reliance and less resource intensiveness
3. Technological effect: Improvements of efficiency for production

Question 14

Do scale effects lead to more environmental degradation or improvement?

Answer 14

Degradation through more economic activity

Question 15

Do composition effects lead to more environmental degradation or improvement?

Answer 15

Could be either

Question 16

Do technological effects lead to more environmental degradation or improvement?

Answer 16

Improvement through more efficient technology