Economics 1500

  1. What has been used as argument in support of imposing tarriffs
    support infant industries, preserve domestic jobs, protect industries important to national security
  2. The country with a comparative advantage in the production of good x is the one that
    can produce good x at the lowest opportunity cost
  3. if the relative opportunity costs of producing two goods are identical across two countries then
    one country will have a comparative advantage in both goods
  4. If a tariff is so high it completely eliminates imports it will
    raise no tax revenue
  5. Countries can expect to gain from international trade as long as they
    specialize according to their comparative advantage
  6. What is not a legitimate argument in favor of protecting domestic industries from foreign competition
    making domestic firms more efficient
  7. economists generally support free trade
    since free trade promotes the efficient use of resources and increases national output
  8. Quotas and tarrifs can
    have the same effect on the price of the domestically produced good if they are set appropriately
  9. The analysis of international trade suggests that when there are no economies of scale
    all countries gain from trade, but smaller countries are likely to reap realtively bigger gains
  10. Free trade associations tend to
    expand trade among some members but reduce trade with other countries
  11. When economists look to the future and consider the prospect of china and india emerging as developed nations they are
    optimisitic because increased specialization can increase total world prodcution
  12. What is not a current view?
    • 1. trade will cause the us to lose all its jobs because wages are so much higher in the us
    • 2. globalization will result in dramatically lower level of output in the U.S.
    • 3. the U.S. will not have a comparative advantage in anything in 20 years
  13. Suppose the U.S. dollar buys 100 Japanese yen, gold costs 500$ per ounce in New York, and gold costs 20,000 yen in Tokyo. What does the law of one price predict would happen?
    Traders would buy gold in Japan and sell it in the U.S.
  14. What does an import quota do?
    increase the price of the domestic good to the consumer
  15. Three determinants of the terms of trade are:
    • 1. the more competition the less the trader gets
    • 2. smaller countries get a larger proportion of the gain than the larger countries
    • 3. countries producting goods with economies of scale get a larger gain from trade
  16. Some sources of U.S. comparative advantage are:
    • 1. Skills of the U.S. labor force
    • 2. U.S. governmental institutions
    • 3. U.S. phyiscal and technological infrastructure
    • 4. English is the international language of business
    • 5. Wealth from past production
    • 6. U.S. natural resources
    • 7. Cachet (trend setters)
    • 8. Inertia
    • 9. U.S. intellectual property rights
    • 10. relatively open immigration policy
  17. law of one price
    ina competitive market there will be pressure for equal factors to be priced equally
  18. General Agreement on Tariffs and Trade
    regular international conference to reduce trade barriers
  19. World Trade Orgnaization
    an organization whose functions are generally the same as GATT's were-to promote free and fair trade among countries
  20. embargo
    total restriction on the import or export of a good
  21. regulatory trade restrictions
    govenment imposed procedural rules that limit imports
  22. economies of scale
    the situation in which costs per unit of output fall as output increases
  23. infant industry argument
    with initial protection, an industry will be able to become competitive
  24. Reasons for restricting trade
    • 1. unequal internal distribution of the gains from trade
    • 2. haggling by companies over the gains from trade
    • 3. haggling by countries over trade restrictions
    • 4. specialized production (learning by doing and economies of scale)
    • 5. macroeconomic aspects of trade
    • 6. national security
    • 7 international politics
    • 8. increased revenue brought in by tariffs.
  25. economists generally oppose trade restrictions because
    • 1. from global perspective free trade increases total output
    • 2. international trade provides competition for domestic companies
    • 3. restrictions based on national security are often abused or evaded
    • 4. trade restrictions are addictive
Card Set
Economics 1500
chapter 16