Week 16 Flashcards

1
Q

Free trade definition

A

when goods are freely traded between countries without any interference from subsidies, tariffs, quotas or trade barriers

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2
Q

welfare impact for consumers with free trade

A

with free trade there is a big expansion of consumers surplus because price goes down and the quantity we consume increases

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3
Q

welfare impact for producers with free trade

A

producer surplus reduced dramatically because only producers that can produce at the lower price can operate in the market

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4
Q

what is the gain on a free trade graph

A
  • triangle in the middle
    due to increase available of lower priced goods within the domestic market
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5
Q

trade protection definition

A

Policies which aim to increase the production of domestically produced goods at the expense of foreign imports

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6
Q

How does trade protection work

A

have to sacrifice some welfare gain to protect domestic production

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7
Q

what are 4 reasons that UK should use trade protection

A
  • Protect large sunset industries
  • support an infant/sunrise industry
  • protect strategic industry (energy providing, fracking)
  • manage dumping
  • raise tax revenue (from tariffs)
  • maintain product standards
  • correct a trade deficit
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8
Q

dumping definition

A

when countries sell surplus supplies abroad at less than cost price to manage over supply within domestic markets

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9
Q

4 issues of trade protection

A
  • negative for consumers
  • although good for domestic firms they can become complacent > inefficient and noncompetitive
  • reduces global efficiency
  • retaliation
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10
Q

what are 5 forms of trade protection

A
  • tariffs/duties
  • subsidies
  • quotas
  • embargoes
  • trade barriers
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11
Q

tariff/duties definition

A

a tax on imported goods

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12
Q

subsidies definition

A

a government payment to suppliers to reduce the net cost of production

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13
Q

quotas definition

A

a physical limit on the volume of imports permitted

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14
Q

embargoes definition

A

a complete ban on imports

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15
Q

trade barriers definition

A

measures which artificially deter the level of imports

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16
Q

what is the impact on domestic production from tariffs, subsidies and quotas

A

all approaches have the same impact on domestic production and give rise to the same DWL due to reduced productive efficiency

17
Q

what is the only trade protection that doesnt create a DWL

A

A subsidy is the only approach not producing a DWL due to the reduced consumer surplus as P remains the same

18
Q

which trade protection approach carries a cost

19
Q

which trade protection approach generates revenue

20
Q

which trade protection approach is nuetral and isn’t a cost or producing revenue

21
Q

which trade protection is least effective for correcting trade deficits

A

subsidies are as they have the smallest impact on imports

22
Q

economic integration definition

A

where a group of countries take steps to increase the trade levels between them

23
Q

what are the 5 aims of economic integration

A
  • free trade
  • common barriers
  • free movement
  • common currency
  • common fiscal policy
24
Q

what is complete economic integration

A

having all 5 aims of economic integration

25
what is preferential trading area
having none of the 5 economic integration aims
26
what is an example of free trade areas
- only have free trade (1/5 integration aims) example: NAFTA > USA and Canada
26
what is an example of common markets
- have free trade, common barriers, free movement (3/5) example: EU
27
What is an example of economic and monetary union
have free trade, common barriers, free movement, common currency Example: Euro
28
what is an example of complete integration
have all 5 aims (free trade, common barriers, free movement, common currency, common fiscal policy) Example: UK/USA
29
trade creation definition
if production switches from high cost producer to low cost producer due to the form of integration this is seen as efficient
30
trade diversion definition
if production switches from low cost producer to high cost producer due to the form of integration this is seen as inefficient
31
what does that common fiscal policy mean in an economic union
harmonised tax rates and loss of control of monetary policies