Vecka 2 sammanfattningar del 2 Flashcards
What is offshoring?
When a firm outsource parts of the production chain to an independent foreign firm. It involves lower production costs but an additional fixed cost.
Who will choose offshore?
Only firms that operate at a big enough scale.
What does Multinational firms and firms that outsource parts of production to foreign countries take advantage of?
Cost differences across production locations. This is similar to models of comparative advantage where production at the level of the industry is determined by differences in relative costs across countries.
What are The welfare consequences of outsourcing?
There are aggregate gains from increased multinational production and outsourcing, but also changes in the income distribution that leaves some people worse off.
What does A tariff do?
It drives a wedge between foreign and domestic prices, raising the domestic price but by less than the tariff rate. An important and relevant special case, however, is that of a “small” country that cannot have any substantial influence on foreign prices. In the small-country case, a tariff is fully reflected in domestic prices.
Who wins and who loses when you use tariffs?
the domestic consumers lose, for the same reason. There is also a gain in government revenue.
What are the net effect on national welfare because of a tariff?
- an efficiency loss, which results from the distortion in the incentives facing domestic producers and consumers.
- terms of trade gain, reflecting the tendency of a tariff to drive down foreign export prices. In the case of a small country that cannot affect foreign prices, the second effect is zero, so that there is an unambiguous loss.
What is the net effect of An export subsidy?
- It causes efficiency losses similar to those of a tariff but compounds these losses by causing a deterioration of the terms of trade.
What are the net effect of Import quotas and voluntary export restraints?
- It differ from tariffs because the government gets no revenue. Instead, what would have been government revenue accrues as rents to the recipients of import licenses (in the case of a quota) and to foreigners (in the case of a voluntary export restraint).
How can countries improve their terms of trade?
Through optimal tariffs and export taxes.
- Small countries cannot have much influence on their import or export prices, so they cannot use tariffs or other policies to raise their terms of trade but Large countries can influence their terms of trade, but in imposing tariffs, they run the risk of disrupting trade agreements and provoking retaliation.
What is GATT?
the General Agreement on Tariffs and Trade. It comprises both a bureaucracy and a set of rules of conduct and is the central institution of the international trading system.
Can you say another argument for free trade?
If some domestic market, such as the labor market, fails to function properly, deviating from free trade can sometimes help reduce the consequences of this malfunctioning.
What is the new organization The most recent worldwide GATT agreement set up?
the World Trade Organization (WTO), to monitor and enforce the agreement.
What kinds of preferential trading agreements are allowed under the GATT?
- customs unions, in which the members of the agreement set up common external tariffs, and free trade areas, in which members do not charge tariffs on each other’s products but set their own tariff rates against the outside world.
When does a country gain or lose on a trade agreement?
Gains If joining leads to replacement of high-cost domestic production by imports from other members of the agreement—the case of trade creation.
Lose if joining leads to the replacement of low-cost imports from outside the zone with higher-cost goods from member nations—the case of trade diversion—
