Week 5

Question 1

Tariff

Question 2

Specific tariff

Question 3

Ad valorem tariff

Question 4

General Agreement on Tariffs and Trade (GATT)

Answer 4

Created in 1947 by 23 countries

Question 5

World Trade Organization (WTO) & its three major principles

Answer 5

Created in January 1995

1. Reductions of barriers to trade
2. Nondiscrimination, often called the most-favored nation (MFN) principle
3. No unfair encouragement for exports

Question 6

Small country

Answer 6

Nation is a competitive “price-taker” in the world markets for the products we trade.
The price that the country must pay the foreign sellers is not much affected by how much the small country imports of the product.

Question 7

Consumption effect

Answer 7

Loss to consumers in the importing nation based on the reduction in their total consumption of the good

Question 8

Production effect

Answer 8

The extra cost of shifting to more expensive home production

Question 9

Effective rate of protection

Answer 9

The percentage by which the entire set of a nation’s trade barriers raises the industry’s value added per unit of output

Question 10

Monopsony power

Answer 10

Monopsony power exists when a single buyer or an association of buyers can dictate the prices they pay to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers.

Question 11

Large country

Answer 11

Involved in the setting of the price, thus affecting the world price of a good it imports by imposing a tariff.

Question 12

Terms-of-trade effect

Answer 12

the ratio of the international prices of our exports to the international prices of our imports.

Question 13

Nationally optimal tariff

Answer 13

The tariff that creates the largest net gain for the country imposing it.

Question 14

Three main conclusions on tariffs

Answer 14

1. A tariff almost always lowers world well-being
2. A tariff usually lowers the well-being of each nation, inclusing the nation imposing the tariff
3. A tariff helps those groups tied closely to the production of import substitutes, even when the tariff is bad for the nation as a whole

Question 15

Producer surplus

Answer 15

Amount that producers gain from being able to sell goods at the going market place

Question 16

Consumer surplus

Answer 16

Amount that consumers gain from being able to buy a good at the going market price

Question 17

One-dollar, one-vote metric

Answer 17

Every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.

Question 18

Strategic trade policy

Answer 18

example: Airbus and Boeing subsidies.

These subsidies form a government policy helping its own firm’s strategy to win the game and claim the prize (in Boeing, Airbus example, 100 of economic profit)

Question 19

Two forms of strategic trade policy

Answer 19

1. Subsidizing
2. Strategic dumping: aiming to increase the market share, to optimise the volume of their production or to maximise profits through price discrimination.

Question 20

Katzenstein

Answer 20

“Small states in world markets” (1985)

Question 21

Traits of the democratic corporatism in the postwar period

Answer 21

1. Ideology of social partnership expressed at the national level
2. relative centralized and concentrated system of interest groups
3. Voluntary and informal coordination of conflicting objectives through continuous political bargaining

Question 22

Threefold scheme of dominant political forms of contemporary capitalism

Answer 22

1. Liberal countries with ad hoc protectionist policies
2. Statist countriespolicies pursuing structural economic changes
3. Democratic corporatism as small states depend on world markets which makes protectionism unviable

Question 23

Small states and their view on no other option than free trade

Answer 23

1. protectionism would decrease competitiveness of exported products
2. retaliation by other less vulnerable states
3. protectionist policies set bad precedent in domestic policies

Question 24

Katzenstein’s small states in world markets

Answer 24

1985

Norway, Sweden, Denmark, the Netherlands, Belgium, Switzerland and Austria

Question 25

Political strategy of the small states

Answer 25

Katzenstein, 1985

industrial adaptation combining liberalisation with domestic compensation