Econ Ch 5

domestic

native to a country

trade protection

policies that limit imports

import-competing industries

produce goods and services that are also imported

exporting industries

produce goods and services that are sold abroad

Effects of a tariff

1. Increase domestic production of the good 2.Decrease domestic consumption of the good 3. Lowers gains from trade 4. increases price 5. reduces quantity demanded 6. increases quantity supplied 7. reduces total surplus

The Heckscher- Ohlin Model

A country that has an abundant supply of a factor of production will have a comparative advantage in goods whose production is intensive in that factor

Tariff

A tax on imported goods

France and England both produce wine and cloth with constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth, and 100 bolts of cloth if it produces no wine. - France has a comparative advantage in cloth production. - England has a comparative advantage in cloth production. - mutually beneficial international trade is not possible. - France has a comparative advantage in both goods.

England has a comparative advantage in cloth production.

The model suggesting that countries will specialize in producing the good that uses its relatively abundant factor of production MOST intensively is referred to as the _____ model absolute advantage pauper labor fallacy Heckscher- Ohlin sweatshop labor

Heckscher- Ohlin

Which statement does NOT describe a source of comparative advantage? - In general, France has absolute advantage over Italy in production of goods and services. - The United States' technology for computer chip design is more advanced than India's. - Hawaii has a more favorable climate to grow pineapple than does Italy. - In the market for lumber, Canada has more trees than England does.

In general, France has absolute advantage over Italy in production of goods and services.

sweatshop labor fallacy

It's easy to get outraged about the low wages paid to the person who made your shirt, harder to appreciate how much worse off that person would be if denied the opportunity to sell goods in rich countries' markets.

infant industry argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

factor abundance

Refers to how large a country's supply of a factor is relative to its supply of other factors (resource richness)

trade barriers

Taxes, quotas, and other restrictions on goods entering or leaving a country.

Ricardian Model

The assumption that countries will specialize in goods that they can produce more cheaply than other countries.

import quota

a legal limit on the quantity of a good that can be imported

factor intensity

a measure of which factor is used in relatively greater quantities than other factors in production

autarky

a situation in which a country does not trade with other countries

free trade

international trade left to its natural course without tariffs, quotas, or other restrictions.

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Compared with autarky, international trade leads to ______ domestic production in exporting industries and ______ domestic production in import- competing industries - higher; higher - lower; higher - lower; lower - higher; lower

higher; lower

offshore outsourcing

hiring people in another country to perform various tasks

The effect of international trade on U.S. factor markets is to: 1. increase the wage of both highly educated workers and unskilled workers 2. increase the wage of unskilled workers 3. decrease the wage of both highly educated workers and unskilled workers 4. increase the wage of highly educated workers

increase the wage of highly educated workers

Assume that the United States imposes an import quota on Scottish Wool Suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely ______. - remain the same; decrease - increase; decrease - increase; increase - remain the same; increase

increase; decrease

China, which is labor-abundant, has a comparative advantage in clothing production, which is labor-intensive. Which of the following models explains this pattern of comparative advantage? - a model of increasing returns - the Heckscher- Olin Model - the Ricardian Model - a model of autarky

the Hecksher- Olin model

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce more of a given product

On a production possibility frontier, opportunity cost is: - the dollar cost of a good given up to get another good. - the rate at which people are willing to exchange goods as determined by demand and supply. - the decrease in the output of one good when the output of another good is increased. - independent of the slope of the curve.

the decrease in the output of one good when the output of another good is increased.

international trade agreement

treaties in which a country promises to reduce import tariffs in return for a promise by the other country to do the same.

Many countries engage in trade protection by imposing import tariffs or quotas for at least some goods. This is because: - while such restrictions harm consumers, they benefit producers, who are usually a more cohesive and politically influential group. - while such restrictions harm consumers and benefit producers, the losses to consumers are outweighed by the gains to producers. - such restrictions tend to benefit consumers without harming producers - economists have established that such restrictions are wellfare- improving for certain categories of goods. (such as raw materials)

while such restrictions harm consumers, they benefit producers, who are usually a more cohesive and politically influential group.