international trade- economics

QUOTA RENT

(quota price - world price) X quota size

how does international trade benefit the poor?

-goods they can produce at lower relative costs can now be sold at higher prices in foreign markets, increasing income for producers in the process -goods that were relatively more expensive can be purchased for less from foreign producers, increasing consumers' purchasing power and making their income go further -trade provides consumers access to different types of goods, services, and resources that were previously unavailable, increasing their well-being

production possibilities frontier (PPF)

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient.

small-country model

A model of international trade in which the production or consumption of a good, service, or resource in the domestic country is small relative to global markets. Since the domestic country is small relative to world markets, it is a price taker and its consumption and production do not affect the world price. Thus the country adopts the world price for any good, service, or resource as the domestic price.

quota

A numerical limit on the amount of a good that can be imported. Sometimes called an import quota. To be effective, the quota must be less than the amount of imports that are normally sold. A quota is graphically represented as a rightward shift of the domestic supply curve by the amount of the quota

autarky

A situation in which a country is closed to any international trade.

tariff

A tax or fee that must be paid on goods imported from other countries.

barrier to trade

Any policy that is designed to reduce the competitiveness of foreign producers that wish to sell their goods or services in the domestic market, thereby reducing the imports of foreign goods and services.

price takers

Firms that take or accept the market price and have no ability to influence that price.

imports (M)

Goods, services, or resources produced abroad and sold domestically.

exports (X)

Goods, services, or resources produced domestically and sold abroad.

comparative advantage

The ability to produce a good or service at a lower relative opportunity cost than that of another producer.

absolute advantage

The ability to produce more output, given similar resources, than another producer.

gains from trade

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another. The wealth, or additional well-being, created by trade does not have to be monetary.

consumer surplus

The difference between the maximum price consumers are willing and able to pay for a good or service and the price they actually pay. Consumer surplus can also be thought of as the wealth that trade creates for consumers in a market. Consumer surplus is measured in dollars. Graphically, consumer surplus is the area below the demand curve and above the equilibrium price, from zero to the quantity traded.

producer surplus

The difference between the price producers receive for a good or service and the minimum price they are willing and able to accept. Producer surplus can also be thought of as the wealth that trade creates for producers in a market. Producer surplus is measured in dollars. Graphically, producer surplus is the area below the equilibrium price and above the supply curve, from zero to the quantity traded.

welfare effects

The effects that a change in market conditions, usually price, has on the welfare, or economic well-being, of market participants. Welfare effects are generally found by comparing changes in consumer and producer surplus.

quota rent

The income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price. The dollar value of a quota rent is equal to the size of the quota times the difference between the quota price and the world price.

specialization

The practice of producing a single good or service rather than producing multiple goods or services.

domestic price

The price of a good, service, or resource that prevails in the domestic market. In the small-country model, the domestic price equals the world price if the country is open to trade.

world price

The price of a good, service, or resource that prevails in the world market.

terms of trade

The price of one good, service, or resource in terms of another.

tariff revenue

The revenue collected from the imposition of a tariff on goods, services, or resources.

economic surplus

The sum of consumer and producer surplus. It is a measure of the total welfare, or wealth, that trade creates for consumers and producers in a market. Also known as social welfare or total surplus.

deadweight loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

opportunity cost

The value of the next-best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Opportunity costs exist because of scarcity.

free trade

Trade between nations that is free from barriers such as regulations, tariffs, or quotas.

TARIFF REVENUE (TR)

tariff X quantity imported