Micro Chapter 9

The World Trade Organization (WTO)

Is an international organization that oversees international trade agreements, replaced the General Agreement on Tariffs and Trade (GATT) in January 1995, generally aids in negotiating trade agreements that include not only goods but also services and intellectual property

protectionism is the use of trade barriers to shield domestic firms from foreign competition. protectionism is usually justified on the basis of sever arguments which include:

Saving jobs, protecting infant industries, and protecting national secutiry

Why do some people oppose the World Trade Organization (WTO)

Some critics of the WTO support globalization in principle but believe that the WTO favors the interests of the high-income countries at the expense of the Low-income countries, some opponents desire to erect trade barriers to protect domestic firms from foreign competition, some opponents are specifically against the globalization process that began in the 1980s and became widespread int he the 1990s

Since 1930, what has generally happened to tariff rates?

Tariff rates have fallen

How does the World Trade Organization allow countries to determine whether dumping has occurred?

The WTO determines that dumping has occurred if a product is exported for a lower price than it sells for in the home market.

Which of the following is a drawback of the "infant industry" as a justification for protectionism?

The industry under protection will never become efficient enough to compete with foreign firms.

Who is harmed when individual nations move from autarky to free trade?

The owners of the firms that went out of business

The sugar quota in the United States creates winners and losers. The winners are _____________, and the losers are _____________.

U.S. sugar producers; U.S. sugar consumers

What is a voluntary export restraint?

an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country

Among the main sources of comparative advantage are the following

climate and natural resources, relative abundance of labor and capital, technology, external economies

Countries gain from specializing in producing goods in which they have a(n) ___________ advantage and trading for goods in which other countries have a(n) _____________ advantage.

comparative; comparative

What is the name given to the sale of a product for a price below its cost of production?

dumping

Goods and services produced domestically but sold to other countries are called

exports.

Dumping

is selling a product for a price below its cost of production

Comparative advantage

is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

One effect of tariffs and quotas

is to cost jobs outside the industries immediately affected

_____ are good and services produced domestically but sold to other countries. ______ are goods and services bought domestically but produced in other countries. ______ are taxes imposed by a government on imports of a good into a country

Exports; imports; tariffs

Which of the following is an example of positive economic analysis?

measuring the impact of the sugar quota on the U.S. economy

In the United States and Japan, the cost of saving jobs through trade barriers like tariffs and quotas is

relatively high in both countries.

What is absolute advantage?

the ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources

The term external economies refers to

the reduction of costs resulting from increases in the size of an industry in a given area.

Which of the following is a source of comparative advantage?

the relative abundance of capital and labor

What is a quota?

A quota is a numerical limit on the quantity of a good that can be imported.

______ is a situation in which a country does not trade with other countries. The _____ is the ratio at which a country can trade its exports for imports from other countries

Autarky, terms of trade

The primary difference between a quota and a voluntary export restraint (VER) is that

The quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations

Some politicains argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange

This statement is false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas

Which of the following is true about the importance of trade in the U.S. economy?

While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade.

Which of the following arguments is used to justify protectionism?

a. Tariffs and quotas save jobs. b. Tariffs and quotas protect national security. c. Tariffs and quotas protect infant industries.

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true?

a. You have a comparative advantage in picking apples. b. Your neighbor is better off specializing in picking cherries. c. You can trade some of your apples for some of your neighbor's cherries, and both of you will end up with more of both fruit.

In the real world, specialization is not complete. Why do countries not completely specialize?

a. because not all goods are traded internationally b. because production of most goods involves increasing opportunity costs c. because tastes for products differ

The opponents of globalization contend that

globalization destroys cultures

If a country has a comparative advantage in the production of a good, then that country

has a lower opportunity cost in the production of that good.

we do not see complete specialization in the real world because

not all goods and services are traded internationally, production of most good involves increasing opportunity costs, and tastes for products differ.

Which of the following groups of people are significant sources of opposition to the World Trade Organization (WTO)?

people who want to protect domestic firms

The use of trade barriers to shield domestic companies from foreign competition is called

protectionism.

By trading countries are able to consume more than they could without trade. this outcome is possible because

world production of both goods increases after trade, shifting production to the more efficient country- the one with the comparative advantage- increases total production, inefficiencies in resource allocation are reduced