AEM 2300 Prelim 2 Book Practice Mult. choice
in the extreme P(import)- PROW= tariff but quota holders can be
taxed
true or false: mexico trade has increased sharply but econoimc growth has been slower than expected
true
why was IMF established
facilitate internatinoal trade and multilateral system of int'l payments promote stability of exchange rates make short term financial resources available to member nations to correct payments
In Heckscher-Ohlin theory, differences in _____ across countries are considered to be the basis for comparative advantage. consumer tastes and preferences factor endowments production technologies economic freedom
factor endowments
effect of economic growth of small country on its TOT
no effect- country gains from its growth (reaches higher indifference curve no matter what because the country's TOT is the international price ratio
hard brexit would ential
no free movement of people, NTBs, restricted access to EU market
customs union
no trade barriers among member countries and common external tariffs and no-tariff barriers with respect to other nations
did Uruguay round of GATT/ WTO agreement eliminate export subsidies
no- just imposed greater limits on them
does WTO prevent national lawmaking?
no- only the use of trade restrictions (to which governments have already agreed) to enforce them
key principles of GATT
nondiscrimination elimination of non-tariff trade barriers encourage resolution of trade disputes through consultation, complaint procedures and conciliation panels
what is the current status of Doha roudn
suspended in 2006, on off 2009 G-20 leaders pledged to complete Doha round
Countries that are open to international trade: cannot suffer from immiserizing growth. tend to grow faster than the closed economies. tend to lose out on the benefits of technological diffusion. do not experience biased growth.
tend to grow faster than the closed economies.
in industrialized nations NTBs are high in what sectors
textile/ apparel and manufacturing products
what tariff gives the same quantity reduction as a quota when doing tariffication
t=Pimporter-Prestofworld
what are some of the products the EU has listed as targets for tariffs on US exports in retaliation to steel and aluminium tariffs
target products produced in specific states that are politically sensitive ie. ag exports in midwest bourbon motorcycles textiles and apparel, tobacco products textiles and apparel
changes in consumption quantities depend on the ____ of consumers in the contry
tastes represented by community indifference curve
what are factors that contribute to rising income inequality
tech change financial globalization and FDI international trade - supply side- selected sectors benefit from larger global markets - demand side: increased low cost imports help maintain real income levels restructuring of US industrial sector (loss of manufacturing jobs) labor market factors (decline in unions) globalization and the winner take all society
for developing countries, ____ is the driving force behind increasing income inequality
tech changes
Ch. 14
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how many rounds of GATT have there been since 1947- 1994
8
dumping
selling exports at a price that is too low- less than normal value form of international price discrimination
true or false: NTBs have increased significantly from 1995-2010
true
IMF
international monettary fund
environmental kuznets curve
inverted U graph as country income levels inrease, air pollution first increases then decreases
ad valorem tax
is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction
example of free trade area
NAFTA US- Can Free trade agreement
in first best world, free trade=
economically efficient
true or false: the best solution to environmental problems is one that involves trade policy
false (for the most part)
impact of NAFTA on canda=
most positive
bureaucratic barriers
type of NTB exchange rate controls, import license
proportional import quota
'mixing regulations' imports limited to a given percentage of domestic production
"engines of growth" thinking on econ development
1) ag and natural resources 2. manufacturing 3. services 4. knowledge driven, tech and innovation based sectors so why dont developing countries just jump from ag to manufacturing and other sectors
what are arguments contrary to race to bottom argument
1) economic growth promotes conservaiton ethic 2) most gov'ts over time develop stronger relations 3) importance of all countries "buying in: to multilateral reforms
major accomplishments of Uruguay round of GATT
1)tariff reductions averaging 40% for industrial countries and binding (capping) of many tariffs 2) tariffication: decreasing/ eliminated some NTBs (VER's import quotas, export subsidies ) and replacing them with tariffs 3) extension of trade disciplines in 3 new areas - intellectual property -services- opening up domestic markets to trade -agricultural trade liberalization (used to be highly protected sector) 4) elimination of multi-fiber agreement- getting rid of limits on imports of textiles to industrialized countries 5) CREATION OF WTO 1995
arguments against PTAs
1. "Second best," not optimal, outcome compared to multilateral liberalization. 2. Increased potential for trade diversion, and associated costs. 3. Fragmentation and rigidities resulting from distorted trading patterns. 4. Multiplicity of "rules of origin" 5. Slow responsiveness to long-term market changes, and associated costs to and displacement of workers 6. Costs of administration
free trade area
:reducedtradebarriersamongmember countries, but each member maintains its own tariffs and other trade barriers with respect to other countries:
what are the main objectives of NAFTA
1. Increasing trade within region relative to that with external trading nations. 2. Increasing competitiveness 3. Increasing exports to other trading blocs 4. Enhancing industrial complementarity Also unstated objectives: • compete successfully with EU, MERCOSUR, Japan • decrease illegal immigration from Mexico
when did Brexit happen
2016
how many countries are currently in the EU
28
4 alternative solutions to environmental problems
1. command and control 2. changes in property rights 3. use of gov't taxes and subsidies to alter behavior 4. payments for environmental servies (PES)
3 crucial conditions for immiserizing growth
1. country's growth must be strongly biased toward expanding the countrys supply of exports (increasing willingness to trade), must be large country 2) foreign demand for export must be price inelastic 3) before growth, country must be heavily engaged in trade so welfare loss from decline in TOT is great enough to offset gains of being able to produce more
how many members does WTO have now
164 majority low to medium income countries
how many member nations does the IMF and World bank have
189
when was ISI popular
1950s-60s as a result of plummeting primary product prices
Treaty of Rome
1957 creating six member European community (belgium, luxembourg, netherlands, france, germany, italy)
maastrict treaty
1991: members agree to coordination of policies in key areas, movement toward common currency (euro), common monetary policy, change name to EU convergence criteria for EMS member countries to qualify for unification
when did NAFTA start
1994
Which of the following is most unlikely to lead to a reversal of a country's trade pattern? Growth in the country's endowment of the input that is initially scarce A proportionate increase in output in all the sectors of the economy International diffusion of technology Shifting tastes of the country's consumers
A proportionate increase in output in all the sectors of the economy
Which of the following is often forgone in an effort to promote economic development in poorer countries? Clean air Clean water Enforcement of environmental laws All of these are forgone in poorer countries in pursuit of economic growth.
All of these are forgone in poorer countries in pursuit of economic growth.
Which of the following would you expect to lead to worsening environmental quality? An export or production subsidy from the Chinese government to Chinese steel manufacturers Freer trade in capital equipment that incorporates environmentally friendly technologies An export subsidy for producers of clean technology for producing paper Freer trade that promotes production of manufactured goods in developing countries where environmental laws are strict
An export or production subsidy from the Chinese government to Chinese steel manufacturers
Which of the following would you expect to lead to improved environmental quality? An export or production subsidy from the French government to French wheat producers A voluntary export restraint on the part of Japanese auto producers An export subsidy for producers of clean technology for producing paper Freer trade that promotes production of manufactured goods in developing countries where environmental laws are lax
An export subsidy for producers of clean technology for producing paper
Which of the following is one of the fundamental sources of long-run economic growth? An expansion of foreign GDP An increase in demand for the country's importable product An improvement in production technologies An expansion in the export of primary commodities
An improvement in production technologies
how does trade lower inequality in industrialized countries
lower price imports from developing countries, shifts employment to growth sectors
what is the problem with GATT and being able to enforce panel's recommendation
no authority to enforce- (until formation of WTO)
where and when was IMF established
Bretton woods 1944
Suppose country X is one of the largest exporters of coffee in the world. A recent massive cyclone has destroyed much of the coffee crop in country X and has considerably lowered its exports. Which of the following is a likely consequence of this disaster? The size of country X's trade triangle will increase. The price of coffee in the international market will decline. The price of country X's imports relative to the price of its exports will increase unambiguously. Country X's terms of trade will improve.
Country X's terms of trade will improve.
engle's law
Engel's law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. In other words, the income elasticity of demand of food is less than 1 says that demand would keep shifting away from food and toward luxuries
example of common market
European Community (EC) and European Monetary System (EMS)
In a two-commodity world, balanced growth in a country decreases its willingness to trade because the country becomes self-sufficient in the production of both the goods. True False
False
The impact of economic growth on a country's willingness to trade is determined solely by the extent of the shift of its production-possibility curve. True False
False
It is usually better for a large country to subsidize its export-oriented industries rather than its import-replacing industries. True False
False reduces TOT
is extension of trade rules to intel property, services and agriculture good or bad for US
GOOD US has comparative advantage in all 3 of these sectors
How has technology affected developing countries' ability to export primary products? Improved technology helps developed countries more efficiently extract primary products for export. Technology has placed more emphasis on manufacture of more complex products and decreased the demand for primary products. Improved technology has led to the development of man-made alternatives to primary products and depressed prices of some primary products. Technology has increased the demand for primary products that are used to manufacture more sophisticated products.
Improved technology has led to the development of man-made alternatives to primary products and depressed prices of some primary products. `
KEY ECONOMIC ISSUE: do PTA's create or divert trade? • i.e. Greater incentives to trade w Mexico thru NAFTA- are we creating trade or simply diverting trade w other countries to trade w Mex?
Incentives to divert trade other than just economic- political, social reasons- support western hemisphere/ relations with neighbors ◦ Curtail Mexican illegal migration into US
Which of the following is NOT a reason why cartels often lack success over the long term? Decreased demand for the cartel's products New supplies of the cartel's product outside of the cartel Members of the cartel having a tendency to violate cartel rules Nonmembers of the cartel seeking to become members of the cartel
Nonmembers of the cartel seeking to become members of the cartel
what is the gratest cartel success
OPEC
who is the general director of the WTO
Pascal Lemy
Which of the following, if it happens, may result in an increase in the relative price of primary products in the world market? The marginal cost of producing the primary goods declines over time. Productivity growth in the primary sectors is slower than that in the manufacturing sectors. The demand for primary products declines over time. The stock of inventories of primary products unexpectedly increases.
Productivity growth in the primary sectors is slower than that in the manufacturing sectors.
Suppose country A is a major exporter of limestone in the world market. Which of the following policies can be taken by the government of country A to enhance the gains from exporting limestone by raising its world price? Taxing limestone exports Subsidizing export of limestone Subsidizing the extraction of limestone Setting a price ceiling on the limestone sold in the domestic market
Taxing limestone exports
arguments for PTA's
Trade creation > trade diversion (under certain circumstances) 2. To supplement and accelerate multilateral liberalization, both as a "threat" and as a precursor, easing adjustment costs and lessening political opposition. 3. Can reflect characteristics of heterogeneous countries and areas. 4. Foster growth of "countervailing blocs" 5. Creates long-term economic benefits: economies of scale, increase in investment and competition, etc. 6. Encourage economic, social and political reforms of member nations. 7. "Momentum" - e.g., popularity of regional trade agreements, including 55+ agreements in the Western Hemisphere. 8. Quicker and more efficient to reach agreement.
The Dutch disease refers to a situation in which new production of a natural resource results in deindustrialization. True False
True
as of 2010 what country has the most antidumping measures in force
US
what are the problems with quotas
a shift in the ES curve has full effect on price therefore- rigidity- non responsiveness to price increases the likelihood of price instability domestic monopolist will charge higher prices and produce less than with a tariff creation of excess profits (quota rents) liklihood of rent-seeking and corruption
examples of customs unions
a. Ex. "Benelux"- precursor to EU b. MERCOSUR- Argentina, Brazil, Uruguay, Paraguay
what does nondiscrimination mean
acceptance of MFN principle, extension to all member nations (regional trading arrangements like NAFTA= exception)
command and control
administrative regulation, enforcement and penalties
what are the exceptions to elimination of non-tariff trade barriers
ag products, nations in balance of payment difficulties
CITES
agreement on using trade limits and trade bans to prevent extinction of species has been fairly effective ie. ivory and elephants
Structural adjustment programs
aimed at stimulating long term econ growth and transformation of low income countries provide financial support to governments undergoing adjustment
regional and preferential trade agreements
among geographical country groups- in which countries agree to lower or elim tariff and NTB restrictions amongst member nations
harmonizing up
argument in contrast to race to bottom argument states that bringing countries into international orgnaizations at the end of the day will harmonize upward
'sustainable scale' of production
argument that free trade is really unregulated international commerce
kyoto protocol
attempt to adress global warming but has had little effect
payments for enviro services (PES)
based on ecosystem services provided by environment- compensate resource owners/ managers who provide environmental services to encourage them to provide public goods and reduce negative externalities ex. compensate land and forest owners in headwaters of a watershed for watershed protection- compensated for producing cleaner water for downstream users
Suppose a small country experiences economic growth that leads to an increased willingness to trade. The country's terms of trade will _____ because the prices of its exports will_____ relative to the price that it has to pay for its imports. worsen; fall improve; not change be unaffected; not change remain constant; fall
be unaffected; not change
how has NAFTA affected Mexican auto industry
boombed
A criticism that developing countries have about developed countries is that developed countries urge the adoption of free-trade policies: but do not always enact or enforce free-trade policies themselves. that are designed to harm developing countries. that reinforce the long-run downward trend in the relative prices of primary products. that are often adopted without understanding the long-term effects of the policies. References
but do not always enact or enforce free-trade policies themselves.
dumping= international price discrimination that favors who?
buyers of exports
There are two ways to promote import-competing production - a subsidy or a tariff. The tariff and subsidy are in many ways the same, except that the tariff will: cause a production effect while the subsidy will not. cause a consumption effect while the subsidy will not. cause less economic inefficiency. produce a smaller effect on import consumption in the long run.
cause a consumption effect while the subsidy will not.
what accounts for the u shape of the environmental kuznets curve
changing structure of the economy- pollution first worsens then improves as engine of economy changes
tariff-rate quota
combination of a tariff and a quota where a certain amount can be imported duty free, after which a tariff is imposed on remaining exports 'making cake, eating it too:
economic union
common market, plus harmonization of ALL econ policies, common currency, common foreign policy a. EU
prevailing strategy for developing countries post 1960s
concentrate on developing exports of manufactured goods (especially those that are intensive in less skilled labor)
what is conditionality of SAPs
conditional on economic and policy reforms in certain sectors ie. poverty
what are the principle objectives of Doha round of WTO negotiations
cont. tariff reductions (esp. in developing countries) reduce tariff escalation reduce tariff barriers in agriculture clarify trade rules in anti-dumping, intel prop rights, health and safety standards etc clarify enviro relguations and policies
import substituting industrialization (ISI) benefits in theory
could raise national skill levels bring terms of trade gains allow planners to economize on market info
WTO
created in 1995 permanent organization unified agreements to which all members are committed strengthening of dispute resolution mechanisms oversight, monitoring of agreements
countries in transition from central planning to market economies experience ___ in output and income during the early years of transition
declines
export subsidies ___ price in importing country and ___ price in exporting country
decrease, increase
does an export subsidy increase or decrease net national well-being of the exporting country
decreases
trade ____ inequality in developing countries
decreases
what is the effect of an import quota on the price in the ROW (exporter)
decreases
what happens to the quantity imported as a result of an import quota
decreases from Q* to the import quota level
is poverty increasing or decreasing in Asia (especially china
decreasing
New human-made substitutes for primary products: depress the relative prices for the primary products. increase demand for the primary products. increase imports into the country where the substitutes are produced. generally do not affect the demand for the primary products.
depress the relative prices for the primary products.
for countries experiencing high inflation, overvalued currency, chronic budget deficits/ current account deficits, the IMF works to _____ the currency to ____ exports
devalue, stimulate
since the 1950s, what has WOrld Bank's primary focus been
developing countries
evidence shows a downward or upward trend in relative prices of most primary productsq
downward
soft brexit could entail
easy access to EU market, basically same as being in EU but not
IMF's 'quid pro quo' program is what type of program and wht does it do
economic stabalization program that helps govts reschedule debt payments offers loans at reduced interest rates
benefits of Eurozone and single currency
eliminated costs of exchanging currencies more rapid economic and financial market integration Preventing competitive devaluations and speculative attacks more economic discipline reduced cost of borrowing from intl markets more political economic strengthe of EU in intl affairs
The higher the income in a country, the more pressure there is on the government of that country to: relax environmental regulations so that production can increase. insist that other countries relax their environmental controls. enact more stringent environmental protection regulations. limit imports from countries that have strict antipollution policies.
enact more stringent environmental protection regulations.
two factors that have contributed to lowering of relative price of primary prods
engle's law and development of mondern synthetic subs for primary materials
how does trade decrease inequality in developing countries
enhancing export based income and employment shifting workforce from ag to manufacturing services
does empircal evidence support the environmental kuznets curve?
evidecne is over all mixed more country specific effects
Arguments in favor of a developing country using import-substituting industrialization include all of the following except: manufacturing industries can be nurtured as infant industries. data on imports can be used to guide domestic development policy. evidence indicates that countries with outward-oriented policies that emphasize increased exporting tend to grow faster. tariffs provide the government with revenue that can be used to increase spending on education and health.
evidence indicates that countries with outward-oriented policies that emphasize increased exporting tend to grow faster.
Trade barriers related to agricultural products lead to: more efficient agricultural practices and reduced pollution effects. excessive use of pesticides and fertilizers as protected farmers seek to increase production. a broader market for agricultural products and technological advances in agricultural practices. retaliation by other countries, reduced production, and a resulting decrease in pollution from agricultural activities.
excessive use of pesticides and fertilizers as protected farmers seek to increase production.
biased growth
expansion favors producing proportionately more of one of the products- skewed toward faster growing product
what is the strategy of achieving economic growth through promotion of export industries in which country has existing/ potential comparative advantage
export oriented growth
what are issues with export oriented growth
exposure to international price trends, especially for primary commodities leads to long-term price declines for many primary commodities price instability for primary commodities potential TOT problems
true or false: importing country should generally welcome predatory dumping
false
true or false: predatory dumping is common in modern markets
false
true or false: if a country's government fails to implement a policy to limit pollution, free trade may. make the country worse off why?
false because may end up exporting wrong materials
Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and an increase in the economic welfare of the country. True False
false economic growth could result in a country being worse off than before the growth. If growth is heavily export biased it might lead to a fall in the terms of trade of the exporting country.
true or false: US Nafta partners has shrunken over years
false- grown
what are some alternatives for allocating rights to a quota
first come first served political expediency lottery graft
an improvement in TOT is represented as a steeper/ flatter price line?
flatter
with an export subsidy who is able to buy at the lower price and who is not
foreign consumers are able to buy at lower price, domestic consumers cannot
the distribution of quota rents depends on
foreign exporters vs. domestic importers
state trading
form of NTB government acts as monopolist/ monopsonist
national procurement policies
form of NTB ie. buy america act of 1933- state and local procurement laws- increase costs to governments
types of PTAs in order of least to most restrictive
free trade area customs union common market economic union
what is the argument behind free trade and environmental goals are inconsistent
free trade ignores externalities subsidization of energy use increases energy intensive resource use race to bottom
The "production effect" tends to result in more pollution as income within a country increases because: freer trade results in increased production of capital-intensive and skilled labor-intensive products in industrialized countries where incomes are increasing, and this kind of production usually results in more pollution. all production increases pollution and higher incomes, so increased pollution always accompanies increased production and increases in income. as incomes in a country increase, consumers become more focused on what is produced in the country and how that production affects their consumption, so pollution that occurs as a by-product of production becomes less of a concern to consumers. the increased income must be allocated to reduction of pollution or to increased consumption, and, because consumer spending is such an important part of any country's GDP, spending to reduce pollution loses out to increased consumption.
freer trade results in increased production of capital-intensive and skilled labor-intensive products in industrialized countries where incomes are increasing, and this kind of production usually results in more pollution.
why is a global cooperative agreement hard to achieve
freerider problem no enforcement mechanism
what are the welfare effects on the producers in the importing country from an import quota?
gain
special and differential treatment
given to developing countries- can still have higher tariffs on foreign goods but can enjoy the benefits of MFN from other nations
Montreal Protocol
global agreements on CFC's effective at reversing ozone damange overtime
what is the best approach to a global environmental problem (one that imposes a worldwide external cost)
global cooperative agreement- hard to achieve though
Externalities lead to sub-par performance of a market; therefore: government policies intended to offset the effects of externalities are often ineffective. only private initiatives can overcome the sub-par performance of the market. government policies to enhance the efficiency of the market can be justified. society is at the mercy of externalities.
government policies to enhance the efficiency of the market can be justified.
result of dumping
high price at home, low price abroad foreign competitors often perceive dumping at low international price to be unfair competition
widespread energy subsidies encourage
high use
eco-imperialism
idea that rich countries are telling developing world what they can and cannot do environmentally
use gov't taxes and subsidies to alter beahvior
ie. polluter pays principle (pigouvian tax)
non-tariff trade barriers (NTB's) types
import quota dumping export subsidies, export taxes voluntary export restraints (VERs) export embargoes and controls import subsidies tech barriers to trade
Encouraging the development of industries that will allow a country to reduce its dependence on foreign production even if it means that export industries are de-emphasized is: an illegal export subsidy under WTO rules. trade diversion. the first step in creating a cartel. import-substituting industrialization.
import-substituting industrialization.
An example of policies designed to encourage new local industries serving the domestic market would be: taxing exports of manufactured goods. subsidizing imports to the domestic market. imposing import tariffs or otherwise restricting imports. removing all trade restrictions and price supports.
imposing import tariffs or otherwise restricting imports.
Suppose a large country experiences economic growth that results in a reduced willingness to trade. The country's terms of trade will _____ because the fall in demand for imports will cause the price of its exports to _____ relative to the price that it has to pay for its imports. worsen; fall improve; rise improve; fall worsen; rise
improve; rise
rybcyzynski theorem
in a two good world and assuming product prices are constant, growth in the country's endowment of one factor of production with the other factor unchanged has two results - increase in output of good that uses growing factor more intensively -decrease in output of other good
does freer trade/ reduction of trade barriers create higher or lower import prices/ expansion or contraction of demand/
lower import prices, expansion of demand
what is a better way to manage global warming
include the pricing of emissions to provide economic incentives for achieving emission reductions at low cost - pigouvian tax
ISI results actually
income growth is negatively correlated with antitrade policies like ISI and positively correlated with outward oriented policies that are closer to free trade trade barriers become permanet; economic rents created reduces competition, promotes inefficiency smaller markets incentive to use capital intenisve production regardless of country's factor endowments (lack of labor absorption) neglects comparative advantage in primary sectors
export subsidies ____ exports
increase
two fundamental ways of achieving LR economic growth
increase in country's endowments of production factors improvements in production tech
for industrialized countries, tech change and FDI _____ inequality and trade ____ inequality
increase, decreases
agricultural subsidies encourage increased or decreased production
increased
what is the effect of an import quota on the price in the importing country
increases
what could balanced growth be a result of
increases in country's endowments of all factors by the same proportion
is income inequality around the world increasing or decreasing
increasing
all of these are typical SAP reforms except: Eliminate consumer food subsidies Eliminate parastatal marketing organizations; support replacement by private markets Replace administered prices w market prices increasing public sector role in economy and decreasing private sector role Increase subsidized int rates to market level Devalue local currency to reduce imps and stim exports
increasing public sector role in economy and decreasing private sector role - work to decrease pub sector role and increase private sector role
in order for persistent dumping to occur, the domestic market has a more ____ demand and the foreign market has a more ___ demand
inelastic, elastic
If the emerging automobile industry in Botswana requests tariff protection because its costs will be temporarily high until the industry is better established, the automobile industry is using the: specificity rule. infant industry argument. externality argument. "second best" rule.
infant industry argument.
Pollution often has a transborder effect in that: pollution is produced everywhere in the world without regard to whether a nation is developed or developing. it affects not only the country responsible for the pollution but also other countries that are geographically close to the polluting country. the only solution to pollution is a concerted international effort to address the causes and sources of pollution. no country can make economic progress without creating pollution.
it affects not only the country responsible for the pollution but also other countries that are geographically close to the polluting country.
what rounds did the most reductions in tariffs happen in
kennedy tokyo and Uruguay
when quota limit is less than the equilibrium quantity it creates a ____ ED curve
kinked
Many developing countries have comparative advantages based on: land, natural resources, and unskilled labor. capital and innovation. technology and skilled service labor. natural resources, but with little ability to capitalize on that advantage.
land, natural resources, and unskilled labor.
which side of the graph is the consumption effect on
left
dumping = selling exports at a price that is ___ than full avg cost of production
less
capital markets work more or less efficiently in developing countries
less more barriers to lending money to the most productive uses
labor markets work more or less efficiently in developing countries
less wage gaps between expanding and declining sectors greater than in high income countries
compensating tariffs
make up for competitive edge country loses if it chooses to internalize production costs
concerns of developing countries in Doha Development round
market access and industrial tariffs in industrialized countries tariff escalation industrial country ag subsidies (keep world price low) favorable trade in pharmaceuticals S& D treatment
The Rybczynski theorem suggests that development of new natural resources in a country: will result in balanced growth. may cause the country to export only manufactured products. will increase output in all sectors of the economy. may cause the manufacturing sector of the country to shrink.may cause the manufacturing sector of the country to shrink.
may cause the manufacturing sector of the country to shrink.
RTAs/ PTAs are inherently counter to GATT/ WTO principles but permitted, why?
may demonstrate "quasi-national characteristics consistent with broad objective of multilateralism supplemental route to ultimate free trade objectives of GATT and WTO- aims at getting to same final result
EU has a ____ union but without coordinated ____ policy
monetary, fiscal - fiscal budgeting and tax systems, banking regulations not integrated - Germany vs greece budget deficits - different debt levels, risk perceptions
what are the limitations of NTB's
more cumbersome than tariffs in protecting domestic industry; quantitative restrictions less flexible policy substitution- if NTB's are unlimited, then countries will sub them for tariffs non-transparent, opaque increased fixed costs and deter market entry fragmentation of production process ("disintegration of production" "trade in tasks" further complicates trade disciplines for NTBs
why is it harder to measure jobs gained vs jobs lost to NAFTA
more marginal, spread out growth-
how has NAFTA affected the Mexican ag sector
much more competitive BUT many farm households have been displaced (major source of emigrants to US
GATT 1947
multilateral agreement to decrease trade barriers and assure equal treatment among member countries
One of the few arguments that Adam Smith saw as valid for the use of trade protection was the: infant industry argument. domestic production argument. income redistribution argument. national defense argument.
national defense argument
factors that tend to raise the price of primary products
nature's limits relatively slow productivity growth in primary sector- less additions of supply curves
are there effects on the governmnet as a result of an import quota
no
does the WTO allow a country to attempts use trade policy to punish what the country views as environmentally damaging production activities in other countries.
no
does trump like WTO
no
does trump like nafta
no
is the EU a true union
no
Studies have shown that the fear that free trade will cause production to be shifted to countries with lax environmental standards so that lower production costs will be realized are: valid, so the WTO enforces rules that prohibit the shifting of production to countries with low environmental standards. not well-founded because the cost of meeting environmental standards is usually low enough that moving production to avoid meeting those standards is not cost-effective. not well-founded because the variation in environmental standards from country to country are not significant enough to warrant the shifting of production. valid but only with respect to the movement of production from one industrialized country to another industrialized country.
not well-founded because the cost of meeting environmental standards is usually low enough that moving production to avoid meeting those standards is not cost-effective.
cyclical dumping
occurs during periods of recession- firm decreases price when demand is low to limit decline in quantity sold
Often, governments in developing countries will impose tariffs because tariffs are: the best way to protect domestic jobs since imported products will cost more than domestic products. the best way to show the rest of the world that the government is stable. often the cheapest and most effective means available of generating government revenues. the only way to promote domestic production.
often the cheapest and most effective means available of generating government revenues.
if country's TOT increases (reduction in price of imports compared to exports), the ppc shifts ____, and the country receives a ___ price for its exports relative to price it has to pay for imports
out, better
problems that have not been adressed successfully
overfishing and global warming
quota
physical or value limitation on imports (exports) of a commodity
polluter pays principle
pigouvian tax tax production of good that pollutes to get socially desired level of production
immiserizing growth
possibility of a decline in well being due to growth because of sharp decline in TOT - increase in willingness to trade drives down relative price of export too much
balanced growth
ppc shifts out proportionately so that it is the same shape growth results in proportionate increase in prdocution of all prods if product prices remain the same
types of dumping
predatory cyclical seasonal persistent
normal value
price charged to comparable domestic buyers in the home market or average cost of producing the product
The comparative advantages that many developing countries have logically lead them to exports of: products assembled from components made in other countries. primary products and products based on primary products. products manufactured specifically for industrialized countries. finished, skilled-labor-intensive products.
primary products and products based on primary products.
changes in property rights
privitization to avoid freeridership and tragedy of commons so people will have private incentives to preserve resources ex. tropical deforestation
transborder pollution
production (or consumption) activities in one country impose external costs on neighboring countries
As the world moves toward freer trade: production of capital- and skill-intensive products expands in industrialized countries and shrinks in developing countries. worldwide pollution becomes less of a problem because production becomes more efficient. international organizations such as the WTO are better able to address the problems created by pollution. most environmental problems become worse.
production of capital- and skill-intensive products expands in industrialized countries and shrinks in developing countries.
International cartels in primary products other than oil are unlikely because: no developing country would be interested in establishing a cartel unless it was for oil. oil is the only product that developed countries are interested in importing from the developing world. production of most primary products is widely distributed, and a cartel in most primary products would be subject to competition from noncartel countries. developing countries are not sophisticated enough to establish and maintain a cartel without the assistance and participation of developed countries.
production of most primary products is widely distributed, and a cartel in most primary products would be subject to competition from noncartel countries.
other arguments influencing trade-environment outcomes
protectionism different countries have different enviro preferences
japan's auto VER's are an example of what
protectionism argument that supports free trade consistent with environmental goals
If the objective of government policy is to protect a domestic industry for national defense purposes, the best policy strategy is to: impose a tariff on imports that compete with the domestic industry's product. impose an import quota on imports that compete with the domestic industry's product. do nothing. provide subsidies to the strategic national defense industry.
provide subsidies to the strategic national defense industry.
what does the world bank do
provides long term loans for member countries (must be paid back though)
quota rent
pure excess profit given to traders who benefit from import quota - what they get from buying cheap in exporting country and selling high in importing country
explain the argument that environmental goals and international trade are complimentary
rade growth--> economic growth--> higher incomes--> increased demand for environmental amenities and conservation
name 3 benefits to freer trade and reduction of trade barriers
realization of scale economies/ cost savings reduction of organizational inefficiency reduction of potentional for monopoly power increased innovation and tech change avoidance of rent-seeking
which side of the graph is the produciton function on
right
what are the four sources that dictate the speed at which a cartel erodes
rise in product demand elasticity rise in elasticity of competing supplies decline in share of cartel in world market rise in cheating by members of cartel
Assume that a capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. According to the Rybczynski theorem, the relative price of the goods remaining unchanged, an increase in the country's endowment of capital will cause the output of medical equipment to _____ and the output of corn to _____. rise; fall fall; rise rise; remain the same remain the same; fall
rise; fall
TBTs (technical barriers to trade
rules, regulations, standards that limit imports for reasons beyond public health and welfare requirements -sanitary adn phytosanitary restrictions
seasonal dumping
sell off excess inventories of a product ex. at end of fashion season selling clothes below average cost (Sale) perishable agricultural goods
are export subsidies large or small on average
small
the overall impact on US economy and labor market of NAFTA is
small- therefore little effect on real wages
per unit tax
specific tax, is a tax that is defined as a fixed amount for each unit of a good or service sold, such as cents per kilogram. It is thus proportional to the particular quantity of a product sold, regardless of its price.
recent dumping complaints by US
stainless steel- mexico orange juice- Brazil polyethylene bags- thailand shrimp- vietnam footware, iron, steel prods- China
if economic activities produce significant amounts of domestic pollution, the costs will be shifted to foreign consumers of goods that are exported to foreign countries. the cost of the pollution falls almost entirely on the people within the country producing the pollution. the industries in the country where the pollution is produced will bear the costs of that pollution. free trade will offset the domestic costs of that pollution and the country producing the pollution will not suffer as a result of the pollution.
the cost of the pollution falls almost entirely on the people within the country producing the pollution.
A firm maximizes profits by charging a lower price to foreign buyers if: it has a greater monopoly power in the foreign market than it has in its home market. the foreign demand for its good is more elastic than the domestic demand. the buyers in the home country have access to cheaper imports from the rest of the world. the size of the foreign market is much larger than the home market.
the foreign demand for its good is more elastic than the domestic demand.
The cost to firms of meeting environmental protection requirements in a country are usually relatively minor, even in countries with stringent environmental regulations, so: the incentive to relocate to countries with less stringent environmental protection requirements is usually small. most firms will do almost anything to avoid having to invest in pollution control measures to meet those requirements. the WTO is aggressive in requiring firms to meet national environmental regulations. countries with less stringent environmental regulations are able to entice firms away from countries with more stringent environmental regulations.
the incentive to relocate to countries with less stringent environmental protection requirements is usually small.
what does dutch disease and deindustrialization exemplify
the rybczynski theorem
An export subsidy imposed by a large country can be more damaging to national welfare than an export subsidy imposed by a small country because: the production effect is necessarily larger for the large country. the consumption effect is necessarily larger for the large country. the terms of trade worsen for the large country but not for the small country. the net national gains of the large country are overshadowed by the net welfare loss of the world.
the terms of trade worsen for the large country but not for the small country.
The property rights approach to pollution often does not solve international pollution disputes because: private property goes best with free trade. it is difficult to determine the sources of pollution. there is no international authority to enforce penalties for polluting. there is no real international concern about pollution.
there is no international authority to enforce penalties for polluting.
how is the IMF funded
through capital stock and sale of bonds
how is IMF financed
through member countries' quotas and loans
what are export subsidies used for
to increase a nation's exports and support exporters by decreasing the effective price to importers
"race to bottom" argument
to maintain competitiveness in a global trade environment, firms cut costs, including violating labor and enviro regulations
stages of growth post war thinking on econ development
traditional ag-based society "take off"-education, cap mobilization, tech development, incipient manufacturing "drive to maturity"- industrialization, econ diversification (services), lower imports
rules of origin issue of NAFTA
transshipped products made elsewhere (i.e. Central America, Asia) • Prevents strategic behavior that takes advantage of NAFTA: i.e. Nominally a Mexican good b/c has Mexican stamp on it but manufactured in Guatemala- rebranding product as Mexican product then exporting to US, not subject to tariffs
true or false: Since 2000, the number of countries with antidumping laws have increased dramatically
true
true or false: US is most important trading partner for CAN and MExico
true
true or false: if dumping is demonstrated to exist and to have injured the importing country's industry, the WTO permits the importing country to charge an anti-dumping duty
true
true or false: importers are permitted under WTO to impose countervailing duties to offset effects of subsidies
true
true or false: importing country should generally welcome seasonal and intro price dumping
true
true or false: in a situation of economic growth where production and consumption changes in a country, a country's willingness to engage in int'l trade can change even if the relative price between the two products stays constant
true
true or false: joining an international cartel could bring gains to a developing country that exports the cartelized product
true
true or false: WTO agreement eliminated agricultural exports subsidies in 2016
true exceptions to some dairy and pork products developing countries have until 2018 to terminate
true or false: richer countries can afford a cleaner environment
true- have stronger legal and gov't institutions and can enforce regulations
true or false: environmental issues are still a source of conflict for NAFTA
true- maquiladoras
true or false, if a country is large, a change in its willingness to trade affects the equilib int'l price ratio
true- reduction in country's demand for imports reduces relative price of import to export of good
up to what amount can the importing country charge an anti-dumping duty
up to the dumping margin
export subsidies
using tax payer money to give low interest loans to exporters or their foreign consumers
common market
ustoms union PLUS harmonization of national tax systems, social insurance, ag policies, labor and cap migration, fixed exchange rates (w respect to eachother)
specificity rule
usually more efficient to use gov't policy tool that acts as directly as possible on source of distortion
when is pigouvian tax optimal
when MEC=Marginal net benefits ex. carbon tax to adress GHG emmissions
when does biased growth arise
when the country's endowments of dif factors grow at dif rates or when improvements in production techs are larger in one industry than the toerh
when does trade diversion dominate
when the trade partner is a relatively high cost supplier
when does trade creation dominate
when the trade partner is a relatively low cost supplier
are domestic taxes and infrastructure support forms of NTB's
yes
can traders be in both importing and exporting country
yes
does the WTO permit countries to impose environmental standards on domestic production and consumption activities
yes
March 22, 2018 Trump admin announces INTENT TO IMPOSE TARIFFS on $50-60 billion of imports from China, based on sec. 301 finding that Chinese policies that effectively force the transfer of tech and intel prop. in exchange for access to Chinese markets, and engages in widespread theft of US intel prop was this well founded?
yes ◦ More considered, well thought out, based on substance than his other trade policy actions ◦ Undisputable that Chinese steals US intel property
The impact on world well-being of an export subsidy and a countervailing duty (of the same size as the subsidy) is: zero. negative due to overproduction. negative due to underconsumption. negative due to deadweight loss.
zero
what did NAFTA originate with
• Mexican domestic economic reforms in 1980's: cut tariffs and non-tariff barriers; re Joined GATT in 1986. • Canada-U.S. Free Trade Agreement in 1989, establishing free trade area over 10 years. • Surge of regional trade agreements in Western Hemisphere since late 1980's (50+), including regional FTAA agreement, effective 2005.
Ch. 10
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Which of the following represents the incentives at the margin of the first-best world? SMB > SMC P = SMC = MB = MC = SMB P with tax = SMB P < SMC
P = SMC = MB = MC = SMB
LEC 9
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Ch. 11
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Which of the following is true of the specificity rule? The specificity rule suggests that tariffs should be imposed only on specific products. According to the specificity rule, government policy should target as closely as possible the source of the distortion that separates private and social benefits (or costs). The specificity rule posits that a tariff imposed on a good favors only the interests of a specific group within a country. According to the specificity rule, only specific industries should be allowed to participate in government lobbying.
According to the specificity rule, government policy should target as closely as possible the source of the distortion that separates private and social benefits (or costs).
Which of the following is said to occur when a firm lowers its price to limit the decline in the quantity sold during a period of recession? Persistent dumping Cyclical dumping Predatory dumping Seasonal dumping
Cyclical dumping
Which of the following statements about dumping is true? Consumers and import-competing producers in the importing country are both hurt by dumping. Logically, an import country should never allow seasonal and introductory-price dumping. Dumping helps to improve the importing country's terms of trade. Predatory dumping occurs quite frequently in modern markets.
Dumping helps to improve the importing country's terms of trade.
in short run, firm can produce where the price is lower than average cost so long as the price remains above ___
average variable cost
example of VER's
Japanese automobiles to US in 1981-85 avg cost of Jap imports rose by +$600 adn US autos by $13000 saved jobs but cost a lot law of unintended consequences- promoted development of luxury japanese auto industry (Lexus, infiniti, acura)
Which of the following is said to occur when a firm with market power uses price discrimination between markets to increase its total profit? Persistent dumping Cyclical dumping Predatory dumping Seasonal dumping
Persistent dumping
_____ occurs when a firm temporarily charges a low price in the foreign export market, with the purpose of driving its foreign competitors out of business. Persistent dumping Cyclical dumping Predatory dumping Seasonal dumping
Predatory dumping
what are some VER type arrangements that still persist
US and Canada- softwood lumber
rubber band imports is an example of
US dumping
what was the Hong Kong Declaration of Dec 2005
WTO trade conference 25 countries agreed to eliminate export subsidies by end of 2013 but never happened
What is the moral hazard that trade assistance can create? It is often viewed as immoral to provide adjustment assistance to workers in one industry without making the same available to workers in all industries. In terms of ethics and morality, free trade is viewed as moral and restraints on trade are viewed as immoral. Workers, companies, and industries that are provided financial assistance in the face of difficult economic situations may change their behavior to rely on that assistance. In some countries, trade decisions are heavily influenced by religious beliefs, so trade decisions that have a negative economic effect are viewed as being immoral.
Workers, companies, and industries that are provided financial assistance in the face of difficult economic situations may change their behavior to rely on that assistance.
If the objective of government policy is to redistribute incomes, the best policy strategy is to: impose a tariff that favors disadvantaged groups. impose an import quota that favors disadvantaged groups. address the problem directly with taxes and transfer payments, not with trade policies. do nothing.
address the problem directly with taxes and transfer payments, not with trade policies.
what industries are export subsidies traditionally used in
agriculture, aircraft
voluntary export restraints (VER's)
an agreement between an exporter and an importer in which the exporter voluntarily agrees to limit exports (typically with the implied threat of trade retaliation if this is not done
how can the governmnet gain from existence of quota rents
auction off the right to import to the highest bidder
how does the firm maximize profits in persistent dumping
by equating marginal costs (MC) to marginal revenues (MR) in each of the two markets
why in some cases would a subsidy be better to promot import competing production than a tariff
does not generate DWL from consumption effect because government is paying the difference
export subsidies redistribute income and welfare away from _____ and toward _____
domestic consumers, taxpayers, foreign producers (via increase in price at home and decrease in price abroad) domestic producers, foreign consumers
what is the main social welfare effect of VER's
enables EXPORTING country, rather than importing country to capture quota rents created by supply limitation
If we live in a second-best world in which too much is supplied because suppliers make and sell units for which the social costs exceed the price, then we are living in a world that has: external costs. external benefits. distorting taxes. monopolies.
external costs.
anti-dumping duty
extra tariff= to dumping margin
persistent dumping
long term price discrimination firm with market power uses price discrimination between markets to increase total profit
why use tariff/ import barrier vs. subsidy
longer lasting politically (less subject to change)
welfare effect on consumers in importing country from import quota
lose
are VER's allowed?
no- they violate the non-discrimination policies of the WTO- prohibited in Uruguay round
do export subsidies better the terms of trade (Pexport/Pimport) in the subsidizing country?
no- worsens it- Pexp<Pimp (increases price at home and decreases price abroad)
tech barriers to trade (TBT) are often ____
nontransparent, politically influenced, inflatable
If Social Marginal Benefit (SMB) > Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Cost (SMC), it implies that: too much is supplied. not enough of a good is being demanded. the socially optimal amount is supplied. the buyers are not maximizing utility.
not enough of a good is being demanded.
dumping margin
price differential between the two countries (Pdomestic- Pforeign)
second best world takes into account that
private actions dont lead to best possible outcomes for society
The fact that we live in a "second-best world" means that: industrialized nations are taking advantage of developing countries. free trade is never really accomplished because having all countries cooperate at any one time is impossible. the supply of specific products will never match the demand for those products. private actions in the markets will not lead to the best possible outcomes for society because of market distortions.
private actions in the markets will not lead to the best possible outcomes for society because of market distortions.
Externalities or spillover effects can negatively affect the economy because: consumer decisions about product A can adversely affect the profitability of other products that are not directly connected to product A. increased demand for product A will result in the diversion of resources to the production of product A and fewer resources being available for the production of other products. some costs of producing a product may be ignored by private decision makers, so that too much of the product is produced or consumed. improved technology in one sector of the economy can improve productivity not only in that sector but also in other sectors and lead to changes in labor requirements in all affected sectors of the economy.
some costs of producing a product may be ignored by private decision makers, so that too much of the product is produced or consumed.
The ____________________ proposes that government should spot distortions in market incentives and impose policies that correct the distortions with incentives or disincentives. import barrier theory externality theory tariff-or-subsidy approach tax-or-subsidies approach
tax-or-subsidies approach
predatory
temporary price discrimination in favor of foreign buyers to eliminate competitors in SR and in the long run increase prices
true or false" an export subsidy can switch the production of a good from an import to an export
true- gives advantage to exporter
true or false: freer trade and reduction of trade barriers permit NET welfare gains
true- though welfare of individual groups may increase or decrease
