Chapter 7

By​ trading, countries are able to consume more than they could without trade. This outcome is possible because

A. world production of both goods increases after trade. B. inefficiencies in resource allocation are reduced. C. shifting production to the more efficient countrylong dash—the one with the comparative advantagelong dash—increases total production. D. all of the above.** D.

Exports are goods and services produced domestically but sold to other countries. Imports are goods and services bought domestically but produced in other countries. Tariffs are taxes imposed by a government on imports of a good into a country.

Exports Imports Tariffs

Dumping

is selling a product for a price below its cost of production.

One effect of tariffs and quotas

is to cost jobs outside the industries immediately affected.

Comparative advantage

may change as time passes and circumstances change.

We do not see complete specialization in the real world because

not all goods and services are traded​ internationally, production of most goods involves increasing opportunity​ costs, and tastes for products differ.

​_____ is a situation in which a country does not trade with other countries. The​ _____ is the ratio at which a country can trade its exports for imports from other countries.

​Autarky, terms of trade

Why do some people oppose the World Trade Organization​ (WTO)?

A. Some opponents are specifically against the globalization process that began in the 1980s and became widespread in the 1990s. B. Some critics of the WTO support globalization in principle but believe that the WTO favors the interests of the​ high-income countries at the expense of the​ low-income countries. C. Some opponents desire to erect trade barriers to protect domestic firms from foreign competition. D. All of the above.* D.

The World Trade Organization​ (WTO)

A. replaced the General Agreement on Tariffs and Trade​ (GATT) in January 1995. B. generally aids in negotiating trade agreements that include not only goods but also services and intellectual property. C. is an international organization that oversees international trade agreements. D. all of the above.* D.

The primary difference between a quota and a voluntary export restraint​ (VER) is that

the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations.

The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss​ (loss in economic​ surplus) from this tariff is illustrated by areas

C and D.

Who is harmed when individual nations move from autarky to free​ trade?

The owners of the firms that went out of business.

Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.

This statement is​ false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

Among the main sources of comparative advantage are the​ following:

climate and natural​ resources, relative abundance of labor and​ capital, technology, external economies.

In addition to tariffs and​ quotas, governments sometimes erect other barriers to trade. For​ example, all governments require that imports meet certain health and safety requirements. Many governments also restrict imports of certain products on national security grounds. Explain whether you agree or disagree with the following​ statement: ​Sometimes, however, governments use these requirements to shield domestic firms from foreign competition.

​Yes, sometimes governments impose stricter health and safety requirements on imported goods than on goods produced by domestic firms.

Comparative advantage

is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments which​ include:

saving​ jobs, protecting infant​ industries, and protecting national security.