Lesson 14 - McGraw Hill MicroEcon

What are benefits of international trade?

1. Gains from specialization 2. A higher level of material well-being 3. A more efficient allocation of resources 4. Deterring monopoly 5. Promoting competition 6. Reducing the threat of war

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, Big Country needs to give up

3/4 units of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit Y and should produce Y

What impact do foreign imports have on domestic price and quantity?

Imports REDUCE domestic price, INCREASE consumption and DECREASE domestic production

Distinctions between land, labor and capital-intensive commodities are important because

an abundant supply of one type of resource gives the country a comparative cost advantage in products using that resource

Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. The limits of the terms of trade between these two countries will be

between 1 unit of good X for a unit of good Y and 4/3 a unit of X for a unit of good Y.

The export supply curve for a particular country is the

difference between quantity supplied and quantity demanded in the domestic market for a price above the domestic equilibrium price

The import demand curve for a particular country is the

difference between quantity supplied and quantity demanded in the domestic market for a price below the domestic equilibrium price.

In net, tariffs or quotas are

negative, since the costs to consumers substantially exceed the gains to producers and government.

distinctive products...

provide an export niche for a country

In percentage terms, our exports of goods and services are

small when compared to other industrialized countries

A quota that results in the same level of imports as a tariff is more detrimental to an economy because...

the government loses tax revenue