Section 5

Question 1

When world price is higher than a country’s domestic price. What will the country be

Answer 1

Exporter because they will have comparative advantage

Question 2

What happens to domestic price once trade is allowed

Answer 2

Domestic price equals world price

Question 3

How do you determine who the winners and losers are from trade

Answer 3

We look at consumer and producer surplus

Question 4

When a country is exporter who are the winners and losers

Answer 4

There is a decrease in domestic quantity demanded

And an increase in total quantity demanded

Therefore sellers are the benefits or winners

the producer surplus increases

Domestic consumers are worse off

However total surplus has increased which region is economic well-being

Question 5

When the country imports her who are the winners and the losers

Answer 5

Consumers are better off they are the winners

Producers are worse off

Economic well-being has increase which is the total surplus

Question 6

What is a tariff

Answer 6

A tax on imported goods

Question 7

When does the tariff matter

Answer 7

It only matters if the country imports the good

The terrif raises the price of the imported goods above world price by the amount of the tariff

Makes it closer to the price without trade

Question 8

What happens to the quantity demanded and the quantity supplied when there is a tariff

Answer 8

1. Domestic quantity demanded is reduced
2. The Mestic quantity supplied is increased

This causes deadweight loss

Question 9

What are the other benefits of international trade

Answer 9

1. Increased variety of goods
2. Lower-cost through economies of scale
3. Enhanced flow of ideas
4. Increased competition

Question 10

What are the arguments to restrict trade

Answer 10

1. Job argument
2. Protection as a bargaining chip
3. National security argument
4. Infant industry argument
5. Unfair competition argument

Question 11

What are the two approaches to free trade

Answer 11

1. Unilateral approach

2. Multilateral approach

Question 12

What is the unilateral approach

Answer 12

Remove it’s trade restrictions on its own

Question 13

What is the multilateral approach

Answer 13

Reduces trade restrictions with other countries do the same

Ex NAFTA and GATT

Question 14

What is the advantage to the multilateral approach

Answer 14

1. Potential to result in freer trade

2. Political advantage

Question 15

What is a disadvantage of multilateral approach

Answer 15

if international negotiations fail however the result could be more restricted trade than in under a unilateral

Question 16

When world price is lower than a country’s domestic price. What will the country be

Answer 16

Importers

Question 17

What is an import quota

Answer 17

are quantitative restrictions on the amount of a product that can be imported from abroad.

Question 18

By placing limits on how much of the product can be imported, import quotes do what to consumer and producer surplus

Answer 18

1. benefiting domestic producers and hurting consumers.
2. there is a reduction in the welfare of society due to the deadweight loss created by a net reduction in total surplus—the losses to consumers exceed the gains to producers.

Question 19

What is an import quota

Answer 19

are quantitative restrictions on the amount of a product that can be imported from abroad.

Question 20

By placing limits on how much of the product can be imported, import quotes do what to consumer and producer surplus

Answer 20

1. benefiting domestic producers and hurting consumers.
2. there is a reduction in the welfare of society due to the deadweight loss created by a net reduction in total surplus—the losses to consumers exceed the gains to producers.