Session 12 Flashcards
Determinants of int trade
- Shipping costs, which have declined steadily with technological innovation
- Trade tariffs, which have also decreased with increases of trade deals
- Comparative advantages, which may come from:
-> Relatively abundant inputs (e.g., timber in Canada)
-> Specialized skills (e.g., watchmaking in Switzerland)
-> Mass production (e.g., furniture production by IKEA)
World marked, world supply and world demand?
World market is governed by world supply and demand:
- World supply: the total quantity of a product produced by all manufacturers in the world at each price.
- World demand: the total quantity of a product demanded across all buyers in every country at each price.
- World Price: the price that a product sells for in the global market
Arguments for curbing international trade?
- National security concers
- Protecting infant industries
- Preventing unfair competition (Dumping)
- Enforcing minimum standards
- Saving domestic jobs
-> Look at notes
Tariff? result of tariff?
a tax imposed on imported products
- With tariffs, prices rise, domestic demand falls, domestic supply rises → import decreases → government tax revenue from imports decreases → Economic surplus decreases, domestic consumers have to pay more for tax revenue, tariffs distort demand and supply, create dead weight loss (Slides!)
Tools of trade policy?
- tariff
- Trade red tape: excessive bureaucracy and formalities that inhibit trade
- Import quota: a limit on the quantity of a good that can be imported
- Trade agreements: international agreements that often constrain protective measures that can be taken by countries and facilitate international trade
WTO? Pillars of WTO-Agreements?
is an international organization that facilitates international trade. (Provides a forum for member countries to jointly agree to reduce trade barriers).
Pillars:
1. Most-favoured-nation status: all member nations must treat all others equally (exception for free-trade agreements)
2. National treatment principle: imported goods and locally produced goods must be treated equally once they have entered a country
Free-trade-agreements FTAs?
are regional or bilateral trade agreements which supersede WTO agreements and provide more favourable conditions than the general WTO terms (World Trade Organization 2023)
Stantcheva 2022 main findings?
large scale survey on the perception of trade of US-residents findings
- Perceived job risks matter more for policy views than perceived consumer gains.
- Beyond their own material self-interest, people care about the broader implications of trade in terms of efficiency and equity
- Personal exposure to trade shapes policy views through
Look at slides!
Nominal exchange rate? Terms for currency becoming cheaper/more expensive against another currency?
Currencies are traded at a nominal exchange rate: the price of a country’s currency in terms of another country’s currency
- When a currency becomes more expensive, we say that it appreciates (against another currency)
- When a currency becomes cheaper, we say that it depreciates (against another currency)
-> As many other markets, appreciation and depreciation is governed by supply and demand forces
-> Demand for US Dollars reflects foreigners buying American exports and investing in the US
-> Supply of US Dollars reflects Americans buying imports and investing abroad
Determinants of currency demand
Exports: demand for domestic currency will increase if exports rise due to:
- Strong global economy
- Less trade barriers
- Domestic innovation
- Rising foreign prices
- Falling domestic prices
Financial inflows: demand for domestic currency will increase if financial inflows rise due to:
- Higher domestic interest rates (conditional on risk)
- Higher domestic profitability of investments (conditional on risk)
- Higher foreign political risk (conditional on foreign interest rates)
- Higher expected future value of the domestic currency
Determinants of currency supply
Imports: supply of domestic currency will increase if imports rise due to:
- Strong domestic economy
- Less trade barriers
- Foreign innovation
- Falling foreign prices
- Rising domestic prices
Financial outflows: supply of domestic currency will increase if financial out f lows rise due to:
- Lower domestic interest rates (conditional on risk)
- Lower domestic profitability of investments (conditional on risk)
- Lower foreign political risk (conditional on foreign interest rates)
- Lower expected future value of the domestic currency
