PoB quiz 2

What is comparative advantage?

Producing a good at a lower opportunity cost.

What is absolute v comparative advantage?

Absolute = produces more. Comparative = lower opportunity cost.

What is New Trade Theory?

Trade comes from economies of scale and produce variety.

What is a monopolistic competition?

Many firms sell similar but different products.

What are increasing returns to scale?

More production lowers average costs.

What are external increasing returns?

Industry growth lowers costs for nearby firms.

Why do industries cluster.

Shared workers, suppliers, knowledge, and lower costs.

Why do similar countries trade?

They exchange different product varieties and gain economies of scale.

Why does France import Italian wine?

Consumers want variety, even when France produces excellent wine.

What is the Heckscher-Ohlin model?

Countries export goods using their abundant resources.

Who gains and loses under Heckscher-Ohlin?

Abundant factors gain; scare factors lose

Who gains in developed vs developing countries?

Developed: Skilled labor/capital
Developing: low-skilled labor

What does Stolper-Samuelson predict?

Trade raises abundant-factor wages and lowers scarce-factor returns.

Factor v sector model?

Factor: Workers can switch industries
Sector: Workers are tied to industries

Who gains and loses under the sector model?

Export industries gain; import-competing industries lose.

Why protect domestic industries?

To protect jobs and businesses from foreign competiton.

What is the trade prisoner’s dilemma?

Countries benefit from free trade but individually want import barriers

How does the WTO solve the trade dilemma?

Creates rules and agreements that discourage trade barriers.

What is Most Favored Nation?

Trade advantages given to one WTO member go to all members.

What is National Treatment?

Imported goods receive the same treatment as domestic goods.

What is infant-industry protection?

Temporarily protecting new industries until they become competitive.

Why protect industries with increasing returns?

Protection gives firms time to grow and lower production costs.

CHIPS act: three arguments for?

National security, domestic production, and innovation/jobs

CHIPS act: three arguments AGAINST?

High costs, market distortion, and inefficient subsidies

how do liberalism see the market.

Free market

How does Mercantilism see the market.

State control

How does Marxism see the market?

Class inequality

What are the Three “I”

Interests, ideas, and institutions

What are interests?

Wants

What are Ideas

Beliefts

What are Institutions

Rules and organizations

What is public v private goods?

Public: non-rival and non-excludable
Private: Rival and excludable

What is market failure?

When markets fail to allocate resources efficiently.

Why should government provide public goods?

People can benefit without paying, so markets underprovide them.

What are externalities?

Actions that affect outsiders

What is asymmetric info?

One side knows more than others

How does the market allocate goods?

Supply and demand determine prices and who gets the goods.

How does government allocate goods?

Rules, taxes, spending, and regulations

What are the three sources of business power?

Instrumental, structural, and discursive

What is instrumental power?

Direct influence through lobbying donations and political connections

What is structural power?

Businesses influence leaders because leaders depend on their investment.

What is discursive power?

Influencing what people believe through ideas and messaging.

Why does globalization increase business power?

Businesses can leave for another country if unhappy.