ch7

offshore outsourcing

a U.S. firm buys finished goods, components, or services from firms in other countries

import quota

a restriction that limits the maximum quantity of a good that may be imported in a given period

tariff

a tax that is imposed by the importing country when an imported good crosses its international boundary

General Agreement on Tariffs and Trade (GATT)

an international agreement signed in 1947 to reduce tariffs on international trade

World Trade Organization (WTO)

an international organization that places greater obligations on its member countries to observe the GATT rules

True/false: the U.S. consumer surplus from wheat increases when the U.S. exports wheat.

false: U.S. consumer surplus falls because the U.S. price of wheat rises when the U.S. exports wheat.

True/false: if Chile imposes an import quota on U.S. wheat, Chile gains.

false: a quota creates a deadweight loss in Chile, indicating that Chile loses from the quota.

True/false: an import quota has no effect on consumer surplus because quotas do not change the price of the good.

false: a quota raises the domestic price of the good, thereby decreasing the consumer surplus.

True/false: the only argument for protection without any error is the infant-industry argument.

false: all arguments for protection are flawed.

True/false: when governments impose tariffs, they increase their citizens' consumer surplus.

false: by raising the price of imported goods, tariffs harm consumers.

True/false: governments gain more revenue from import quotas than from tariffs.

false: governments gain no revenue from import quotas whereas they gain some revenue from tariffs.

True/false: international trade lowers wages in poor nations.

false: international trade raises wages in poor nations.

True/false: nations can trade goods but not services.

false: services such as travel abroad, transportation, and insurance, can be traded internationally.

True/false: tariffs in the U.S. are at an all-time high.

false: tariffs in the U.S. are near an all-time low.

True/false: an import quota and a voluntary export restraint both raise revenue for the government.

false: the government gains no revenue from either a quota or a voluntary export restraint.

True/false: only the nation that exports the good gains from international trade.

false: the total surplus rises in both the nation that exports the good and the nation that imports the good.

True/false: because U.S. total surplus rises when the U.S. imports a good, no one in the U.S. loses from importing a good.

false: while U.S. total surplus rises, U.S. producer surplus falls and U.S. producers are harmed by imports.

Doha Development Agenda (Doha Round)

negotiations held in Doha, Qatar, to lower tariff barriers and quotas that restrict international trade in farm products and services

imports

the goods and services that we buy from people in other countries

exports

the goods and services that we sell to people in other countries

rent seeking

the lobbying for special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others; the pursuit of wealth by capturing economic rent

dumping

the sale by a foreign firm of exports at a lower price than the cost of production

True/false: when France imposes a tariff on wheat, production of wheat in France increases.

true: by raising the French price of wheat, French producers respond by increasing the quantity of wheat they produce.

True/false: in 2011, the value of American imports exceeded the value of American exports.

true: in 2011, as throughout the past three decades, the value of U.S. imports exceeded the value of U.S. exports.

True/false: U.S. workers can compete with lower paid foreign workers in industries in which the U.S. has a comparative advantage.

true: in industries with a comparative advantage, higher productivity more than offsets higher wages, so American firms can successfully compete.

True/false: compared to the situation before international trade, the price of a good rises in the U.S. when the U.S. exports the good.

true: the U.S. price rises to equal the world price.

True/false: if the U.S. price of a good before international trade is lower than the world price, the U.S. will export this good when it trades internationally.

true: the lower U.S. price means that the U.S. has a comparative advantage in the production of the good.

True/false: compared to the situation before international trade, U.S. consumption of a good increases when the U.S. imports the good.

true: the rise in consumption is the benefit the U.S. receives from imports.

True/false: domestic producers gain and domestic consumers lose from exports.

true: when the U.S. exports a good, the U.S. price rises, which benefits U.S. producers and harms U.S. consumers.

True/false: U.S. producer surplus decreases when the U.S. imports a good.

true: when the U.S. imports a good, the U.S. price falls and the quantity produced in the U.S. decreases, both of which decrease U.S. producer surplus.