International Trade
In a two-country, two-commodity framework, when one country has an absolute advantage in the production of both commodities, _____.
differences in the opportunity cost of production between the two countries ensure that specialization and trade result in mutual gains
The law of comparative advantage states that:
each country should specialize in producing the good with the lowest opportunity cost.
Countries that adopted the General Agreement on Tariffs and Trade (GATT) agreed to:
impose low import quotas on non GATT countries.
The _____ argument was formulated as a rationale for protecting emerging domestic industries from foreign competition.
infant industry
The World Trade Organization (WTO):
provides the legal and institutional foundation for world trade.
Tariffs and quotas:
reduce consumer surplus and increase producer surplus in the importing country.
The cost of the resources used by domestic producer groups, including lobbying fees, propaganda, and legal restrictions, is collectively referred to as the cost of:
rent-seeking.
If a country has an absolute advantage in producing a good, it means that:
the country is able to produce that good using fewer resources than other countries.
If quota rights accrue to foreigners, then _____.
the domestic economy is worse off with a quota than with a tariff
If a country experiences economies of scale in the production of a good, it implies that:
the long-run average cost of production falls as the scale of operation expands.
A World Trade Organization (WTO) member country must offer _____ to all other member countries.
the same trade concessions
terms of trade
the world price of a good determined by the world supply and demand for the good.
Some industries have argued that since their output is vital for national defense, _____.
they should be entitled to additional trade protection
Tariffs can potentially benefit some groups of people in the economy. However, economists argue that:
trade barriers slow global economic progress.
Autarky Equilibrium
where producers maximize profit and consumers maximize utility under autarky
tariff
A tax on imported goods
General Agreement on Tariffs and Trade (GATT)
An international tariff-reduction treaty adopted in 1947 that resulted in a series of negotiated "rounds" aimed at freer trade; the Uruguay Round created GATT's successor, the World Trade Organization (WTO)
common market
Group of countries that have few or no trade restrictions with one another
Autarky
National self-sufficiency; no economic interaction with foreigners
_____ is the temporary sale of products in a foreign market at prices below cost to eliminate competitors in that foreign market.
Predatory dumping
Which of the following assumptions is required for a production possibilities curve to be a straight line?
Resources are equally adaptable to the production of both goods in a country.
dumping
Selling a product abroad for less than charged in the home market or for less than the cost of production
Uruguay Round
The final multilateral trade negotiation under GATT; this 1994 agreement cut tariffs, formed the World Trade Organization (WTO), and will eventually eliminate quotas
world price
The price at which a good is traded on the world market; determined by the world demand and world supply for the good
Suppose the government of an importing country is considering imposing either a tariff that would result in imports falling to 1 million units per year or an import quota of 1 million units per year. Which of the following is true?
The tariff will increase the revenue of the government of the importing country, while the quota will increase the profits of the foreign exporting firms with quota rights.
multilateral agreement
Trade agreement among more than two countries
bilateral agreement
Trade agreement between two countries
import quota
a limit on the number of products in certain categories that a nation can import
consumption possibilities frontier
a nation's possible combinations of goods available as a result of specialization and trade. slope is opportunity cost of producing the good on the x-axis, should be negative.
Which of the following is a difference between the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)?
GATT was involved only in merchandise trade, while the WTO covers services and trade-related aspects of intellectual property.
Which of the following is true of an export subsidy?
It slows economic progress and reduces the net welfare in an economy.