Chapter 21: International trade Flashcards Preview

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Flashcards in Chapter 21: International trade Deck (13)
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1
Q

Comparative Advantage

A

The advantage a country has when it can produce a good at lower opportunity cost than any other country can.

2
Q

Tariff

A

A tax on imports

3
Q

Quota

A

A legal limit imposed on the amount of a good that may be imported.

4
Q

Dumping

A

The sale of goods abroad at a price below their cost and below the price charged in the domestic market.

5
Q

Tariffs’ effect on surpluses (Consumer & Producer)

A

Tariffs lead to a decrease in consumers’ surplus, an increase in producers’ surplus and tariff revenue for the government.
Consumers lose more through tariffs than producers and government gain.

6
Q

Quotas’ effect on surpluses

A

Quotas lead to a decrease in consumers’ surplus, an increase in producers’ surplus, and additional revenue for the importers who sell the amount specified by the quote. Consumers lose more through quotas than producers and importers gain.

7
Q

Arguments for trade restrictions

A
  • National defense
  • Infant industry
  • Antidumpting
  • Foreign export subsidies
  • Low foreign wages
  • Saving domestic jobs
8
Q

National defence argument for trade restrictions

A

States that certain goods are necessary to the national defense and should be produced domestically whether the country has a comparative advantage in their production or not.

9
Q

Infant industry argument for trade restrictions

A

States that infant, or new, industries should be protected from free trade so that they have time to develop and compete on an equal basis with older, more established foreign industries.

10
Q

Antidumping argument for trade restrictions

A

States that domestic producers should not have to compete (on and unequal basis) with foreign producers that sell products below cost and below the prices they charge in their domestic markets.

11
Q

Foreign export subsidies argument for trade restrictions

A

States that domestic producers should not have to compete (on an unequal basis) with foreign producers that have been subsidized by their governments.

12
Q

Low foreign wages argument for trade restrictions

A

States that domestic producers cannot compete with foreign producers that pay low wages to their employees when domestic producers pay high wages.

13
Q

Saving domestic jobs argument for trade restrictions

A

States that through low foreign wages or government subsidies (or dumping and similar practices), foreign producers will be able to outcompete domestic producers and that therefore domestic jobs will be lost. For domestic firms to survive and domestic jobs not to be lost, limits on free trade are proposed.