CH 17: International Trade

Quota rents are profits for foreign firms or governments from

(domestic price - world price) x Qimports

<blank> on imports usually address issues affecting consumers rather than workers in the countries where production takes place.

Blanket Standards

<blank> advantage is the ability to produce a good or service at a lower opportunity cost than others.

Comparative

Firms in one country will have a lower opportunity cost of production because of national characteristics that affect the cost of producing goods in a particular country. These national characteristics include which of the following?

Endowment of factors of production Natural resources and climate Technology

<blank> standards on specific countries typically address production issues in the country of origin, such as labor or environmental conditions.

Import

What are the two main types of standards on imported goods?

Import standards on specific countries Blanket standards imposed on all imports

The problem of inconsistent standards can be approached in which of the following two main ways?

Policymakers making explicit laws about imports Consumers making voluntary purchasing decisions

When the WTO reviewed the EU ban on beef containing hormones, they ruled the ban was illegitimate.

True

When trade is possible, each country can purchase the goods for which it has a comparative advantage.

True

Comparative advantage is the ability to produce

a good or service at a lower opportunity cost than others.

<blank> advantage relates the ability to produce; <blank> advantage determines who produces what

absolute; comparative

Import standards on specific countries are

are less common than blanket standards.

An <blank> is an economy that is self-contained and does not engage in trade with outsiders.

autarky

Assume when the economy of Big (not a price taker) is an autarky, the domestic price exceeds the world price. When the economy of Big moves from autarky to free trade, assuming world demand increases by more than world supply, the economy of Big as a whole is <blank> off. Big producers will be <blank> off since there is a <blank> in the domestic price.

better; worse; decrease

In the United States, the restriction on imports of products that violate domestic copyright or patent laws is an example of

blanket standards.

National <blank> that affect the cost of producing goods in a particular country include natural resources and climate, endowment factors of production, and technology.

characteristics

Only a firm with <blank> advantage at producing a product— that is, the lowest <blank> cost of production—will be able to make the product profitably.

comparative; opportunity

The U.S. has a relative abundance of high-skilled labor. This was an advantage for the low-skilled workers when the

country didn't engage in much trade.

A tariff causes

deadweight loss and is inefficient.

When a quota is imposed, domestic quantity demanded

decreases

As a general rule, free trade increases

demand for factors that are domestically abundant, and it decreases the supply of factors that are domestically scarce.

Even if trade was perfectly free, nations would not specialize completely, because within each country there are

differences in the natural resources, climate, and relative factor endowments.

Fill in the blanks to complete the sentence. Because some consumers are willing to pay more for fair trade goods means it is an option producers can use for product

differentiation

Import standards on certain countries and blanket standards are solutions that some countries use to address

differing labor or environmental standards.

Trade allows consumers to buy at a price where

domestic demand doesn't equal domestic supply.

Exports are goods and services that are produced

domestically and consumed in other countries.

If an autarky has a price below the world price and decides to begin exportation, the higher world price would push the domestic quantity demanded <blank> and the domestic quantity <blank>, The gap between them is made up by product <blank>

down; up; exports

If wealthy countries try to help poorer countries by agreeing to exempt them from quotas, the result can be artificially higher prices that

encourage production when there is no comparative advantage.

Free trade acts to

equalize the supply of and demand for factors across countries.

If the domestic price for a product is below the world price, and an autarky decides to convert to an open market, it will

export goods

If the domestic price for a product is below the world price, and an autarky decides to convert to an open market, it will <blank> The domestic market price for the product will rise and more <blank> producers will be willing to produce the product.

export; domestic

Free trade causes

factor prices to converge across countries.

A movement that certifies and labels products that meet certain standards, such as minimum wages and conditions for workers, and that do not cause harm to the environment is the

fair trade movement

The reality is that the day-to-day business of trade is carried out almost entirely by

firms and individuals.

When everyone responds to the profit motives they face as individual producers, firms will produce

goods in which they have a comparative advantage, and the gains from trade will occur.

Countries can have <blank> consumption of all goods after specialization and trade.

higher

Countries can have higher <blank> consumption of all goods after specialization and trade.

higher

If the workers are more productive at making salsa than hats, the salsa factory will be willing to offer them a <blank> wage, causing the supply of labor for making hats to <blank>

higher; decrease

The Multifibre Agreement (MFA), established

import quotas

The North American Agreement on Labor Cooperation expresses the agreement of the three countries to work in the long term toward a set of labor standards. This is an example of

import standards.

Goods and services that are produced in other countries and consumed domestically are

imports

Imports are goods and services that are produced

in other countries and consumed domestically.

Because features like climate, population, and technology are not uniform throughout an entire country, <blank> specialization, in which a country produces some of many different kinds of goods, can be efficient.

incomplete

When a quota is imposed, domestic quantity supplied

increases

When everyone responds to the profit motives they face as individual producers, the

invisible hand guides them to make products in which they have an comparative advantage.

The quantity that consumers want to buy at any given price is

is not affected by trade.

The quantity that consumers want to buy at any given price, and the quantity that domestic producers are willing to sell at any given price

is not affected by trade.

An import quota

limits the amount of a good that can be imported, thus increasing prices.

Absolute advantage is the ability to produce

more of a good than others with a given amount of resources.

Assume the entry of the economy of Big (not a price taker) into the world market has increased the world price. Producers in the rest of the world receive

more, which increases their surplus.

Assume the entry of the economy of Big (not a price taker) into the world market has increased the world price. Consumers in the rest of the world have to pay

more, which reduces their surplus.

Trade enables consumers to buy <blank> products at a lower world price and increases total economic <blank>

more; surplus

Every country produces more than one good because

national economies are not perfectly free markets.

The variation among countries in terms of laws and safety policies, labor standards, environmental regulations, and taxes is

one source of friction in international trade.

Over time, technology tends to spread from country to country, equalizing _____ costs.

opportunity

The price of each factor of production incorporates the <blank> cost of using that factor to produce other goods.

opportunity

Under the Bush steel tariff, the combined benefits that the tariff brought to steel producers and the U.S. government were

outweighed by the loss in surplus suffered by domestic steel consumers.

People earn income from <blank> of the factors of production

ownership

The <blank> of each factor of production incorporates <blank> cost of using that factor to produce other goods

price; opportunity

Typically, the most important goal of a tariff is to protect the interests of domestic

producers

When everyone responds to the <blank> motives they face as individual producers, firms will produce goods in which they have a comparative advantage, and the gains from trade will occur.

profit

An embargo is a

prohibition of trade in order to put political pressure on a country.

In general, the WTO's role is to

promote freer trade.

A preference for policies that place limits on trade is called

protectionism

Both a quota and a tariff

push the domestic price above the world price.

The value that under a tariff becomes tax revenue, and under a quota turns into profits for foreign firms or governments, is called

quota rents

Trade liberalization refers to policies and actions that

reduce trade restrictions and promote free trade.

Assume when the economy of Big is an autarky, the domestic price exceeds the world price. When the economy of Big (not a price taker) moves from autarky to free trade, the world demand curve shifts to the <blank> because Big consumers <blank> the market and the world supply curve moves a bit to the <blank> because Big shirt producers <blank> the world market

right; enter; right; enter

An autarky is an economy that is

self-contained and does not engage in trade with outsiders.

When we say that "the United States has gained from trade," we mean

some in the U.S. gained and some lost.

Every country produces more than one good because restrictions and political concerns put limits on how much <blank> we can expect

specialization

The fact that companies in China sell clothing to the U.S. tells us

that China's opportunity cost of making a shirt is lower than that of the United States.

As Bangladesh became more and more connected to international markets through trade,

the price of labor has risen. the relative incomes of the owners of labor have increased. workers began to earn enough to import food.

As Bangladesh became more and more connected to international markets through trade,

the price of land has fallen. the relative incomes of the owners of land have decreased. textile firms seeking cheap labor moved in.

If wealthy countries try to help poorer countries by agreeing to exempt them from quotas,

the result can be artificially higher prices.

Even though U.S. workers are more productive shirt-makers, U.S. firms import shirts made in China because

there are gains from trade.

The reality is that the day-to-day business of <blank> is carried out almost entirely by firms and individuals.

trade

Policies and actions that reduce trade restrictions and promote free trade are often referred to as

trade liberization

Laws limiting trade are often referred to as

trade protection

If an autarky decides to trade and begins to import, a lower world price would push the domestic quantity demanded _____ (up/down) and the domestic quantity supplied _____ (up/down).

up; down

An important distinction between the impact of tariffs and quotas is who benefits from the difference between the

value of the product in the U.S. and their value on the world market.