ECON CH9: International Trade

comparative advantage

someone who has a lower opportunity cost should produce and sell a specific good or service

import

to buy goods or services from foreign sellers

export

to sell goods or services to foreign buyers

trade costs

the extra costs incurred as a result of buying or selling internationally, rather than domestically

foreign price + trade costs < domestic price

import a good if:

foreign price - trade costs > domestic price

export a good if:

high trade costs

importing and exporting are more costly

low trade costs

importing and exporting are more affordable

trade agreements

eliminate extra taxes associated with trade

abundant inputs

determined by geography, climate, natural resources and people, businesses, strategic investments

opposites attract

if your trading partner has very different resources than you, they will likely have different opportunity costs than you, leading to greater gains from trade

specialized skills

unique skills, production methods or expertise can lower your opportunity costs

mass production

incredibly specialized production lines and bargaining power

world supply

total quantity of a good supplied by all manufacturers around the world, at each price

world demand

total quantity of a good demanded by all buyers around the world, at each price

world price

the price that a product sells for in a global market

interactions of all the buyers and sellers around the world

When something is traded internationally, the price is determined by the ____________.

no-trade equilibrium

where quantity demanded by domestic buyers equals the quantity supplied by domestic sellers

new price

First step: Figure out the ___ ____.

quantities demanded, supplied

Second step: Determine the ______ _____ and _____ by domestic buyers and sellers at this new price.

quantity

Third step: Assess the ____ that will be traded.

raise

Imports ___ economic surplus.

gain consumer surplus

Domestic buyers __________ due to lower-priced imports.

lose producer surplus

With imports, domestic sellers ________ due to foreign competition.

lose consumer surplus

With exports, domestic buyers _______ due to foreign competition.

gain producer surplus

With exports, domestic sellers _________ due to higher-priced exports.

national security concerns

it may be critical to our health and safety that certain goods are produced in country so our trading partners cannot limit our access

all countries

As long as we are not cut off from ___ _____, we will have ways of getting what we need.

protection for infant industries

governments can help create new industries by shielding fledgling businesses from international competition

fail to grow as efficient, identify

Infant industries often ________ as the competition, and it can be difficult for governments to ______ which industries are likely to mature well.

dumping

rival businesses temporarily charge extremely low prices, essentially ______ their good into the US market

efficient producer

It is difficult to distinguish dumping from an _____ ____.

enforcing minimum standards

trade can undermine these when we purchase foreign goods made in sweatshops

minimum standards

no child labor, minimum wage and safety and environmental standards

poverty

Restricting trade with low-income countries will create even more _____.

restrict trade to save domestic jobs

domestic workers employed in industries that compete with imported good will lose their jobs, and may not be re-employed in another job

tariff

a tax on imported products → increase trade costs

shrinks, grows, government revenue

Due to tariffs, consumer surplus ____, producer surplus ____ and government transfers some amount of pre-tariff consumer surplus into _____ _____.

reduced

Due to tariffs, economic surplus is _____.

tariffs

reduce international trade and raise revenue for domestic government

red tape and import quotas

reduce international trade but does not raise revenue for domestic government

exchange rate manipulation

a country can use this tool to increase its exports and reduce its imports

globalization

the increasing economic, political and cultural integration of different countries