Joey's handy dandy econ final study guide part 5, Ch. 20-21

International trade currently involves about _________________ worth of goods and services thundering around the globe.

$20 trillion

The membership of the WTO includes about __________ nations.

150

Despite interlocking import quotas, tariffs, and nontariff barriers, the share of apparel sold in the United States that is imported rose from about _________ in 1999 to about ________ today.

50%; 75%

How can a nation use opportunity cost to achieve trade benefits?

By producing a product where it has the lowest opportunity cost and trading for products where it doesn't have comparative advantage. (Learning Objective: Identify trade benefits by considering opportunity costs)

What is the relationship between production costs and comparative advantage?

Comparative advantage considers, "How much am I giving up to produce this good in this country?" (Learning Objective: Show the relationship between production costs and comparative advantage)

____________ means selling goods below their cost of production.

Dumping

Protectionism has three main forms: tariffs, import quotas, and...

Non-Tariff barriers (Learning Objective: Explain protectionism and its three main forms)

__________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficult to import products.

Nontariff barriers

Which of the following is TRUE about tariffs?

Tariffs increase the price of imported goods, which decreases demand. (Learning Objective: Explain tariffs as barriers to trade)

________________________ is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant healthy industry.

The infant industry argument

How might international trade impact the labor demand curve and wages.

Workers in industries impacted by imported products will see the demand curve shift left and wages decrease. (Learning Objective: Explain how international trade impacts wages, labor standards, and working conditions)

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product.

absolute advantage

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:

an absolute advantage in coffee production

__________________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.

comparative advantage

The concept of ____________________ means that as the measure of output goes up, average costs of production decline—at least up to a point.

economies of scale

Which of the following is not a short-run impact of imposing quotas on the American industries they seek to protect?

government tax revenues increase

According to international trade theory, a country should:

import goods in which it has a comparative disadvantage.

If a nation has a comparative disadvantage in the production of some commodity:

it can still gain from international trade in that commodity, by getting it at a lower opportunity cost than if it produced it domestically.

Intra-industry trade between similar trading partners allows the gains from ________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

Trade allows each country to take advantage of ______________ in the other country.

lower opportunity costs

The reasons that nations trade includes the fact that:

no one country produces all of what citizens within the country want.

International trade is fundamentally a ________________________.

win-win situation

What is the primary argument supporting protectionism?

Free trade can lead to job loss and lower wages. (Explain and analyze various arguments that are in support of restricting imports, including the infant industry argument, the anti-dumping argument, the environmental protection argument, the unsafe consumer products argument, and the national interest argument)

Which of the following statements is NOT true?

In a two-good market, a country can only have absolute advantage in one good. (This is not true. One country can have absolute advantage in all goods) (Learning Objective: Define absolute advantage, comparative advantage, and opportunity costs)

Which of the following is NOT true about intra-industry trading?

In intra-industry trading, firms can often control the entire value chain for their product (Splitting up the value chain and specialization are more common.) (Learning Objective: Identify at least two advantages of intra-industry trading, 1.With intra-industry trading, comparative advantage is not fixed as taking advantage of economies of scale plays a larger role in productivity than geography or education levels 2. With intra-industry trading, countries can specialize in unique processes and skills)

What happens to the equilibrium price and quantity when a country sets a low or medium tariff or import quota?

The equilibrium price and quantity will be somewhere between those that prevail with no trade and those with completely free trade. (Learning Objective: Analyze protectionism through concepts of demand and supply, noting its effects on equilibrium)

Country A specializes in producing kiwis. Country B specializes in producing oranges. As a result, Country A can consume more kiwis and oranges than it could have if it had tried to grow kiwis oranges itself and had decided not to trade. This illustrates the concept of:

The gains of trade (This scenario illustrates the benefits to be had from trading.) (Learning Objective: Explain the gains of trade created when a country specializes)

If Argentina imports manufacturing parts from Guatemala, and Guatemala imports delivery trucks from Argentina, how could you best describe the pattern of trade?

The opportunity cost of producing manufacturing parts in Argentina is higher than it is in Guatemala.

Various international crises and issues periodically raise the price of oil imports, which can send ripple effects throughout the economy. While it might not be the producer that other countries are, the U.S. has vast supplies of oil. What is a likely reason it still imports oil despite the impact of these international influences on prices?

The opportunity costs of producing all oil products domestically must still be higher than importing. (One reason for difference in opportunity cost is that is that not all oil is the same, and the U.S. and its specific regions can more efficiently import foreign oil than produce or transport it domestically.)

What is an argument expressed to counter infant industry rationale for protectionism?

The protectionism intended to be short-term often extends further than planned. (Learning Objective: Explain and analyze various arguments that are in support of restricting imports, including the infant industry argument, the anti-dumping argument, the environmental protection argument, the unsafe consumer products argument, and the national interest argument)

The long-term trend in barriers to trade can be characterized as follows:

Trade barriers have generally been reduced, and means of trade have generally been increased. (Learning Objective: Analyze trade policy at the national level)

Tariffs are taxes imposed on _________________.

imported products

The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower ___________.

opportunity cost

Some nations that seek to produce all of their own needs face the problem that:

some industries are too small to be efficient if restricted to their domestic markets alone.

Why don't countries specialize in the production of just a few goods for which they have a comparative advantage?

In most cases, increasing opportunity costs would accompany the continually increasing production of a product specialist.

What is the relationship between economies of scale and intra-industry trade?

Intra-industry trade brings competition and diverse products to markets where economies of scale would otherwise promote fewer firms and fewer product options (Learning Objective: Explain the relationship between economies of scale and intra-industry trade)

How does protectionism impact the job market?

Jobs will flow from industries without import protections to those with import protections. (Learning Objective: Discuss how international trade influences the job market)

What is a benefit of reducing barriers to international trade?

The specialization it promotes leads to greater worker productivity (Learning Objective: Identify at least two benefits of reducing barriers to international trade)

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.