CHAPTER 15

A firm in the U.S. can contain things that it sells in four ways:

-Hire American labor and produce in the U.S. -Hire foreign labor and produce in other countries. -Buy finished goods, components, or services from other firms in the U.S. -Buy finished goods, components, or searches from other firms in other countries.

4 Sets of tools the government uses to influence international trade and protect domestic industries from foreign competition:

-Tariffs. -Import quotas. -other import barriers. -export subsidies.

When the U.S. government imposes a tariff on an imported good,

-U.S. consumers of the good lose. -U.S. producers of the good gain. -U.S. consumers lose more than U.S. producers gain; society loses.

When the government imposes and import quota,

-U.S. consumers of the goods lose. -U.S. producers of the good gain. -importeres of the good gain. -society loses.

two sets of policies that influence imports

-health, safety, and regulation barriers. -Voluntary export restrains

.Arguments against globalization and for protection. Protection...

-saves jobs. -allows us to compare with cheap foreign labor. Penalizes lax environmental standards. -prevents rich countries from exploiting developing countries.

2 Reasons international trade is restricted:

-tariff revenue -rent seeking.

Two classical arguments restricting international trade:

-the infant-industry argument -the dumping argument.

Consumers lose from a tariff for three reasons.

-they pay a higher price to domestic producers. -they consume a smaller quantity of the good. -they pay tariff revenue to the government.

Comparative Advantage

Fundamental force that drives international trade. -definition: a situation at which a person can perform an activity to produce a good or service at a lower opportunity cost.

Dumping

Occurs when a foreign firm sells its exports at a lower price than its costs of production.

Free trade brings about

a global rationalization of labor and allocates labor resources to their highest valued activities.

Internation gain provides

a net gain for a country.

Subsidy

a payment by the government to a producer.

Export Subsidy

a payment by the government to the producer of an exported good so it increases the supply of exports

Import Quota

a restriction that limits maximum quantity of a good that may be imported at a given period.

Tariff

a tax on a good that is imposed bu the importing country when an imported food crosses its international boundary.

The Tariff brings in revenue for the government while the quota

brings a profit for the importers.

In the case of exports, the producer gains hat the

consumer loses, and then gains even more on the items it exports

Like a tariff, the import quota an import quota

decreases the gains from trade and is not in the social interest.

Dumping might be used if a firm wants to gain a

global monopoly

Tariffs raise revenue for the government an enable the government to satisfy the self-interest of the people who earn their incomes in the

import-competing industries.

The importer is able to buy the good on the world market at the world market price, and sell the good

in the domestic market at the domestic price. the importer gains.

Infant-Industry Argument

it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets. Based on the idea of comparative advantage, which can arise from learning by doing.

Rent Seeking

lobbying for special treatment by the government to create econmic profit or to divert the gain from trade away from others.

The combo of a higher price and larger quantity produced increases

producer's profit. so U.S. producers fain form the quota.

What is the main reason international trade is restricted?

rent seeking.

For industrialized countries, the income tax and sales tags are the major sources of

revenue and tariffs that play a very small role.

Import quotas enable the government to

satisfy the self-interest of the people who earn their incomes in the import competing industries.

The Tariff revenue is a loss to consumers but it's not a

social loss.

The gains that offshoring brings:

specialization and trade.

The greater the rise in price and decrease in quantity consumed,

the greater is the loss to the consumer.

The greater the fall in the price and increase in quantity consumed,

the greater the gain to the consumer.

Society loses when the government imposes a quota because

the loss to consumers exceeds the gains of domestic producers and importers.

In the case of imports, the consumer gains what

the producer loses, and then gains even more on the cheaper imports.

The combo of higher prices and larger quantity produced increases

the producer's profits

similar to the tariff, when the price rises,

the quantity bought decreases, and the quantity produced in the U.S. increases.

We measure the gains and losses from imports by examining

their effect† on the price paid and the quantity consumed by domestic consumers and their effect on the price received and quantity sold by domestic producers

The "losers" when it comes tor trade..

those who have invested in human capital to do a specific job that has now gone offshore.

The profits of firms that produce exports rise, these firms expand their work force,

unemployment in these industries decrease and wages rise.