Economics Ch. 12

absence of gvmt intervention in international trade

• gvmt intervention in international trade through imposition of trade restrictions
• 1. Protect jobs, industries, citizens
• 2. Encourage new industries
• 5. National Security

• taxes on imported goods
• 1. to protect domestic industry from foreign competition (protective tariff)
• 2. to raise revenue for the gvmt (revenue tariff)

legal limits to the quantity of a good that can be imported over a particular time period

called voluntary, but are imposed by importing countries via threats.

• 1. Specialization - focus on a few goods/services
• 2. Economy of Scale - decrease cost of production by increasing quantity of output and firm size
• 3. Acquire needed resources - from other countries
• 4. Increased competition = increased efficiency
• 5. Flow of new ideas and technology
• 6. Decrease in hostility and violence
• 7. Greater efficiency - leads to more economic growth
• 8. Increase in exports > more economic development

• 1. Employment increases
• 2. Government has more revenue

• 1 Income distribution worsens (Regressive Tax)
• 2. Domestic society is worse off
• - consumers worse off
• - increase production by relatively inefficient producers
• 3. Exporting countries worse off
• 4. Global misallocation of resources
• 5. Tariff Wars

• Impacts of Import Quotas
• 1. Domestic consumers are worse off
• 2. Domestic producers are better off
• 3. Domestic employment increases
• 4. Importers/gvmt gain quota revenue
• 5. Domestic income distribution worsens
• 6. Domestic society is worse off
• 7. Exporting country is worse off
• 8. Global misallocation of resources

a payment for each unit of output produced made to a firm by the government

• - are payments per unit of output granted by the gvmt to domestic firms that compete with imports
• - intended to protect domestic firms that compete with imports
• Impacts
• 1. Consumption of good is not affected
• 2. Taxpayers are worse off
• 3. Domestic producers are better off
• 4. Domestic employment increases
• 5. The domestic society as a whole is worse off
• 6. The exporting countries are worse off
• 7. Global misallocation of resources

• - intended to protect domestic firms that export
• Impacts
• 1. Consumers are worse off
• 2. Taxpayers are worse off
• 3. Producers are better off
• 4. Domestic employment increases
• 5. Domestic income distribution worsens
• 6. Domestic society is worse off
• 7. Exporting countries are worse off
• 8. Increase in the global misallocation of resources

• Subsidies for Production cause the Supply line to increase
• Good
• 1. Quantity produced by country will increase
• 2. Domestic producers are better off
• 3. Employment increases

• Bad
• 1. Taxpayers are worse off
• 2. Domestic society is worse off
• 3. Consumers are worse off
• 4. Exporting countries are worse off
• 5. Results in a global misallocation of resources
• 6. Income distribution worsens

* Consumption of the good is NOT affected

• 1. Inspections
• 2. Setting Requirements
• 3. Health, Safety, and Environmental Standards

• IMPORTING COUNTRY
• 1. producers benefit
• 2. domestic employment increases
• 3. consumers are worse off (higher price, smaller quantity)
• 4. gvmt/importers do not recieve revenue
• 5. domestic income distribution worsens
• 6. society is worse off due to inefficiency

• EXPORTING COUNTRY
• 1. producers are worse off
• 2. exporters gain
• 3. global misallocation of resources

a new domestic industry that has not had time to establish itself and achieve efficiencies in production

change involving greater variety; economic diversification refers to increasing the variety of goods and services produced (opposite of specialization)

the practice of selling a good in international markets at a price that is below the cost of producing it (unfair trade practice)

• - countries eliminate any remaining tariffs
• - has all of the characteristics of the Custom Union
• - agree to eliminate all restriction on movements of any factors of production within them
• - ex EEC & CARICOM

• - When the member countries adopt a common currency
• - economic integration

a group of countries that have agreed to reduce tariff and other barriers to trade for the purpose of encouraging the development of free or freer trade and cooperation between them.

a group of countries tat agree to gradually eliminate trade barriers between themselves

• - countries eliminate trade barriers between members
• - countries no longer are free to determine their own trade policy - common external policy towards trade
• - countries act as a group in all trade negotiations
• - ex. CEFTA, SACU, PARTA

• 1. Increases ineffiency
• 2. Consumers almost always lose - pay higher prices
• 3. the loss to consumers is almost always greater than the gains recieved by producers
• 4. Income distribution almost always worsens
• 5. Foreign producers are worse off
• 6. Misallocation of resources increases
• 7. Negative impact on a country's ability to compete internationally
• 8. May give rise to trade wars

• 1. Protecting an infant industry - helping it get established
• 2. Strategic trade policy - protect industries that are essential to future growth
• 3. Help your country diversify
• 4. Some industries are essential for national defense
• 5. Tariffs bring in gvmt revenue *
• 6. Helps overcome balance of payment deficit by limiting imports*
• 7. It's an anti-dumping measure (dumping is selling a good at a price that's lower than the cost of production)*
• 8. Protect domestic production*

• 1. Increased competition
• 2. Economies of Scale
• 3. Use of new technologies
• 4. Lower prices for consumers
• 5 Increased investment
• 6. Better use of factors of production
• 7 Improved efficiency in production/allocative efficiency
• 8. Political advantages arising from increase economic integration

• 1. may be 2nd best solutions to eliminate all trade barriers
• 2. may create obstacles to the achievement of free trade on a global scale
• 3. unequal distribution of gains from trading blocs
• 4. gains from a trading bloc may be limited if maajor trade links are with countries outside the bloc

• - Affects Trade, Finance, Investment, People, Technology, Ideas, Knowledge, Communication, Culture
• - Arguments for : increases growth and prosperity for all
• - Arguments against: exploits workers in poor countries, increases unemployment in developed countries, causes environmental destruction

• - globalization has contributed to economic growth
• - has not resulted in a more equal distribution of income and benefits