chapter 9- microeconomics

tariff

a tax on all of a specific good or class of goods from a foreign market.

if a country gas the CA they are

exporting world supply will be above equilibrium

international trade improves the well being of everyone T or F

false

import or export Colby lives in the United States and purchases a video game produced in Japan.

import

international trade is beneficial T or F

true

a tariff reduces economic efficiency

-Low cost producers are prevented from selling -Mutually profitable gains from trade are prevented by law -U.S. consumers pay more, and workers in other countries (many of whom are poor) lose income

In general, which of the statements is most likely to occur as a result of the proposed tax on imported solar panels?

Consumers in Canada will face higher prices for solar panels.

what happens when a Swaziland decides to open trade with the world market for carbonated beverages?

For Swaziland to become an importer of carbonated beverages , the world-market price must be lower than the domestic market price. Therefore, when world trade opens up, the price will decrease and consumers will pay less than they previously did for a can of carbonated beverage. The decreased price will also result in an increase in the quantity demanded on the part of domestic consumers. However, at the new, lower price, producers will want to produce less than they previously did. Whereas before trade opened, producers produced 5 million cans, they will now want to produce 3 million cans, while 7 million are demanded. As a result, Swaziland will choose to import the remaining 4 million cans.

how free trade effects low wage jobs

Free trade can result in some shifting of low‑wage jobs from high-income to low-income countries, but this does not generally happen in the low‑wage service industry. This is because most service industry jobs are not mobile. Haircutting or hotel cleaning services, for example, cannot be imported from abroad (and more technologically oriented service jobs, like computer consulting, tend not to be low‑wage).

free trade between high income and low income economies

Historical experience has shown that trade agreements between high‑income and low‑income economies do not usually lead to an overall reduction in employment and wages in the high‑income economy. This was demonstrated in the case of the North Atlantic Free Trade Agreement (NAFTA) between Mexico, the United States, and Canada.

Which scenario describes the operation of a tariff?

Ireland taxes the import of potatoes in order to keep domestic farmers in business.

protectionism

Policy of restraining trade through quotas, tariffs, or other regulations which burden foreign (but not domestic) producers

Argument: trade restrictions are needed to "protect" domestic jobs

Response: tariffs raise the price of protected goods Consumers have less money to spend on other goods Jobs are lost in other industries (hard to see/measure)

Although both tariffs and quotas are tools used to restrict or reduce trade, which of the statements best describes their differences?

Tariffs are a tax on imported goods, and quotas are limits on the number of imported goods.

impact on producers from international trade

The impact on producers is not as clear. Some firms are made better off because they are able to export goods that would not be sold under autarky. Other firms are made worse off in that competition from international firms can drive domestic firms out of business.

infant industry argument

The infant industry argument calls for protectionism on a temporary basis while a developing industry becomes established and gains the strength to compete against international firms in the future. Bertrand did not mention domestic industries.

job creation argument

The job creation argument states that trade protection encourages job creation in import-competing industries. The environmental protection argument holds that increased globalization and international trade will contribute to reduced environmental quality. If Bertrand talked about overseas textile manufacturing causing increased pollution, then he would be making an environmental protection argument.

Lobbying

The loss to domestic consumers is greater than the gains to domestic producers

national security argument

The national security argument states that a nation should not rely on other nations heavily for "important" goods. This is Bertrand's stance: not wanting to engage in trade for things like oil (due to its use in our military) or clothing (due to it being a basic need). A counterargument to this is that it is hard to distinguish important goods from unimportant goods, as every industry will argue that it is important. Another issue is that it would probably make more sense to allow imports of important goods in order to stockpile them rather than banning or discouraging imports.

international trade is beneficial overall but

These pros and cons suggest impact of international trade is not uniform. Some people gain while others lose. Because estimates of the benefits are larger than the costs, international trade is beneficial overall.

With international trade, there are winners and losers, but ________

but the gains are much larger than the costs.

The world price of grapefruits is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? Lastly, consumer surplus in Cuba will _______ while producer surplus in Cuba will ______

decrease ; increase

After the opening of trade, the price per can of carbonated beverage for the domestic consumer

decreases

import or export A farmer in Iowa sells corn to a food processing plant in China.

export

Free trade is generally seen as beneficial and, as such, will increase overall wage rates and productivity across the economy. However, ________ workers are likely to benefit more from free trade.

high-skilled high-wage workers

if a country does not have the CA they are

importing world supply will be below equilibrium

The world price of grapefruits is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? Cuban exports of grapefruits will ______

increase

The world price of grapefruits is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? The price of domestic Cuban grapefruit for consumers will ______

increase

Which is NOT an effect of a tariff?

increased demand

free trade ______ the wage rates and productivity across the economy

increases

quota

is a firm cap on the number of a particular good or class of goods that can be imported over a given period of time.

trade creates

jobs

import or export Tanesha lives in Tennessee and buys an orange grown in Florida.

neither

what is the biggest cause of child labor?

poverty Reducing international trade will only make countries poorer, which may increase the number of children in the work force instead of reducing the amount of child labor.

if a tariff is imposed ____

price increases above the free trade price, domestic production increases, imports decrease, and the producer surplus increases. The new price will be between the price with only domestic production and the price with free trade. A tariff decreases the number of imports and makes room in the market for an increase in domestic production. Domestic producers benefit because the price will be higher than the free trade price. Producers will increase production and see an increase in the producer surplus.

Tariffs and quotas are both used to

reduce or restrict international trade. This is often done to protect domestic firms from foreign competition which may otherwise flood the domestic market with low-cost foreign goods.

argument some industries should be kept onshore for security reasons

response: perhaps, but this is subject to great abuse-almost every industry can make this argument for protection

argument is it wrong to trade with countries using child or sweatshop labor

response: restricting imports made by child labor may do more harm than good. Their other alternatives are worse (prostitution, scrounging in dumps)

argument: some industries have large positive spillovers to other industries and should be protected

response: how do you determine which industries are "key". when/how are "non-key" industries removed?

strategic protectionism argument: the government can help domestic producers act like a cartel when selling abroad (usually via export tax)

response: this could only possibly work on inelastic goods. if other countries do the same...domestic consumers are harmed.

Canada is considering imposing a tax on imports of Chinese solar panels. This action would be best described as a

tariff

why does congress pass tariffs?

the costs of protectionism are often spread over millions of consumers while the benefits flow to a small number of producers. As a result, the cost to each consumer is small, but the gain to each producer is large.

Bertrand is an avid supporter of protectionism. His primary political principle is the idea that the United States imports too many foreign goods. He dislikes that many of his clothes are made in China instead of the United States because clothing is a basic need, even for babies. He would prefer that the United States drill in the Arctic National Wildlife Refuge (ANWR) instead of importing oil from Kuwait because oil powers our military's tanks and planes. what argument for protectionism is Bertrand using?

the national Security argument

Protectionism

the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports.

Consumers are made better off with international trade because

they are able to choose from a much broader selection of goods and pay lower prices.

T or F the majority of children in the work force work in agricultural industries

true

international trade leads to lower prices and increased variety for consumers in the importing nation T or F

true

T or F one of the proposed solutions to child labor is to provide subsidies to families with children who are currently attending school. the education of these children in poverty will have long-term benefits

true To help eliminate poverty, and consequently child labor, some programs, such as Food for Education, give subsidies to families that send their children to school. Education helps children to get better jobs later in life so they can support their own children and break the cycle of poverty and thus child labor.

T or F the percentage of children in the work force in a country is inversely related to that country's real GDP

true Since poverty is the cause of child labor, it makes sense that economic growth would be the key to solving the issue. Real GDP per capita is a measure of a country's standard of living. Countries with low Real GDP per capita, such as Ethiopia, are poorer and have a larger percentage of children in the work force. In contrast, in countries like the United States, where the Real GDP per capita is high, child labor barely exists.