Chapter 7
Three reasons why complete specialization does not exist in the real world.
1. Not all goods and services can be traded internationally. 2. Production of most goods involves increasing opportunity costs. 3. Tastes for products differ; i.e., people value product differentiation.
4 arguments against protectionism
1. Saving jobs 2. Protecting high wages. 3. Protecting infant industries. 4.Protecting national security. page 225
3 reasons against globalization
1. Some people are pro-Anti-Globalization. Globalization can destroy cultural norms. Jobs go to underdeveloped contries with child labor and low wages. 2. Protect jobs 3. Some believe that WTO favors the interests of high income countries at the expense of low income countries.
General Agreement on Tariffs and Trade (GATT)
A agreement that countries can make to not impose new tariffs or import quotas. Only covers goods and not intellectually property. This was replaced in 19195 by the WTO
Quota
A numerical limit a government imposes on the quantity of a good that can be imported into the country. It has an effect similar to that of a tariff.
Autarky
A situation in which a country does not trade with other countries.
Tariff
A tax imposed by government on imports
Voluntary export restraint (VER)
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. Has a similar effect as a quota.
Imports
Goods and services bought domestically but produced in other countries.
Exports
Goods and services produced domestically but sold in other countries.
Would Trade Organization (WTO)
Intellectual property and goods; and agreement made by countries not to impose tariffs or import quotas. An international organization that oversees international trade agreements.
Economic surplus
Producer surplus + Consumer surplus
External Economies
Reductions in a firm's costs that result form an increase in the size of an industry.
Wall Street
Short hand for the whole U.S. financial system of banks, brokerage houses, and other financial firms. It is also a street in New york where the New York stock exchange is located. Many financial firms have their headquarters nearby there.
Tariffs
Taxes imposed on goods imported into the country. Saves jobs in the country imposing the tariff but my take away consumer surplus. The opportunity cost of saving jobs is consumer surplus.
Product technology
The ability to develop new products.
Process Technology
The ability to improve the process of producing more products which already exist.
Absolute Advantage
The ability to produce more of a good or service than competitors when using the same amount of resources (time is a resource).
Trade
The act of buying or selling
Opportunity Cost
The highest valued alternative that must be foregone to obtain something.
Dead Weight loss
The loss of surplus due to laws or taxes.
technology
The process firms use to turn inputs into outputs.
Terms of trade
The ratio at which a country can trade its exports for imports from other countries.
Protectionism
The use of trade barriers to shield domestic firms from foreign competition.
GDP (Gross Domestic Product)
The value of all the final goods and services produced in a country during a year.
The main purpose of tariffs and quotas.
To reduce the foreign competition that domestic firms face. For the purpose of saving jobs. This comes at the opportunity cost of losing consumer surplus.
Differentiation
When different types of a product are produced.
Complete specialization
When one entity produces all of one product and now one else produces that product. Others trade for the product.
Dumping
selling a product for a price lower than its cost.
Comparative advantage
the ability of an individual to produce a good or service at a lower opportunity cost than competitors.
Globalization
the process of countries becoming more open to foreign trade and investment.
Free Trade
trade between countries that is without government restrictions.
