Trade Policy Instruments and Economic Welfare

These flashcards cover key concepts related to trade policy instruments, economic welfare, and relevant examples to aid in exam preparation.

What are the instruments that fall under import interventions in trade policy?

Instruments include tariffs, import quotas, import licenses, and standards/regulations.

What are the instruments that fall under export interventions in trade policy?

Instruments include export subsidies, export quotas, and export licenses.

What are the two main approaches to developing trade policy?

1. Protectionism: Protects domestic industries through tariffs and quotas. 2. Free trade: Promotes international trade without restrictions.

What is producer surplus?

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive.

What is consumer surplus?

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay.

What is total economic welfare?

Total economic welfare is the sum of consumer surplus and producer surplus in the market.

Provide a numerical example of consumer surplus.

If a consumer is willing to pay $50 for a product but buys it for $30, the consumer surplus is $20.

Provide a numerical example of producer surplus.

If a producer is willing to sell a product for $20 but sells it for $30, the producer surplus is $10.

What does a graph of a closed economy reveal about consumer surplus, producer surplus, and total economic welfare?

In a closed economy graph, label consumer surplus (CS), producer surplus (PS), and total economic welfare (TEW) based on market equilibrium.

How does opening an economy for trade affect consumer surplus, producer surplus, and total economic welfare?

These welfare metrics generally increase when an economy opens for trade due to greater competition and access to goods.

What are anti-dumping measures?

Anti-dumping measures are trade policies imposed to prevent foreign producers from selling below production costs. They are appropriate when domestic industries face unfair competition.

What are voluntary export control measures?

Voluntary export control measures are agreements where exporting countries limit the quantity of goods exported; utilized to prevent trade conflicts.

What are two types of import quotas?

1. Absolute quotas: Set a fixed limit on the quantity of imported goods. 2. Tariff-rate quotas: Allow a set quantity of goods to be imported at a lower tariff rate.

What are two types of import tariffs?

1. Ad valorem tariff: A percentage of the value of the imported goods. 2. Specific tariff: A fixed fee per unit of goods imported.

List two goals of export subsidies.

1. Increase export competitiveness. 2. Support domestic producers in foreign markets.

Why do consumers bear costs for export subsidies?

(a) Directly, through higher prices for goods. (b) Indirectly, through taxes that fund the subsidies.

What are advantages of free trade?

1. Increased variety of goods. 2. Lower prices for consumers.

What are disadvantages of free trade?

1. Job losses in certain sectors. 2. Increased competition for local businesses.

What are advantages of protectionism?

1. Protects domestic jobs. 2. Enables easier regulation of local markets.

What are disadvantages of protectionism?

1. Higher prices for consumers. 2. Retaliatory measures from other countries.

What is a current development related to trade policy changes?

An example is the recent tariffs imposed on specific countries, which impact prices and availability of goods for consumers and profits for producers.