International Trade and Economies of Scale

Flashcards based on lecture notes about international trade policies, economies of scale, and trade dynamics, focusing on key concepts and definitions

Arancel ad valorem

A policy tool where a tax is imposed as a proportion of the price of the imported good.

Import Demand Curve

Shows the maximum quantity of imported goods that the importing country would consume at each price of that imported good.

When is a tariff detrimental to a country?

Situation where the sum of the losses due to producer and consumer distortion is greater than the gain in terms of trade for a country imposing a tariff.

Subsidies

National welfare decreases with these because the government spends public resources and incurs traditional efficiency losses.

Voluntary Export Restraint (VER)

A trade policy that has the same welfare effect as an export subsidy.

Export subsidy

A trade policy instrument that costs the government resources when applied.

Trade policy

The set of policies that countries design and implement to promote or limit the trade of certain goods, using different instruments depending on the objectives.

Export supply curve (XS)

This curve intersects the vertical axis at the export country's price if it were in autarky.

Why did the price increase of washing machines in the US following tariffs on Chinese washing machines was less than the tariff amount added to the pre-tariff price?

The tariff caused a drop in the price of washing machines in China.

Economies of scale

Reductions in the average cost of production as the volume of production increases. The more a company produces, the lower the cost per unit.

Internal economies of scale

Depend on the growth of the company itself, e.g., discounts for large-scale purchases, more efficient use of machinery, organizational improvements.

External economies of scale

Depend on the growth of the industry or cluster, not just one company, e.g., specialized suppliers, skilled labor in the region, better public services.

Dynamic economies of scale

Generated with learning and experience (“learning by doing”), e.g., a company that reduces its costs by perfecting its production process.

Specialized Suppliers

When many companies operate in the same industry or area, a sufficient market is created for specialized suppliers to offer better services and inputs at more competitive prices.

Attraction of Qualified Workers

A cluster of companies attracts more skilled workers because there are more opportunities; Advantage for companies: less talent shortage; Advantage for workers: lower risk of unemployment.

Knowledge spillovers

When many companies are close, knowledge and innovation are shared more quickly through research, reverse engineering, or mutual learning.