LAST ECON TEST WOOOOOOOOOOOOOOOOOO

economic basis for trade (3)

1. nations have diff endowment of resources

2. various goods require dif tech or combo of resources

3. dif goods from dif nations have diff attributes

comp adv assumptions

constant opp costs

dif opp costs

benefits of international trade

1. world’s resourced used more efficiently

2. world productivity increases

3. well being increases

4. competition from foreign nations increases which increases innovation and econ growth

5. more product choices

6. countries love each other

arguments for protectionism

1. country’s self sufficiency

2. military self sufficiency

3. increased domestic employment

4. diversification for stability

5. infant industry

6. protections against dumping

7. cheap foreign labor

increased domestic employment

1. people think that by decreasing imports, there will be more domestic jobs because we have to make everything however, international trade also creates jobs, so either way volume of jobs Is equal

2. this argument has a fallacy of compisition (the idea that what is true for the part is true for whole)

3. this is bc if one country decr imports, fine, but if everyone does it, there can be no exports either

4. the smoot Hawley tariff act of 1920 was when all countries put tariffs in retaliation of US tariffs so everybody’s economy hurt

military self sufficiency

it would be dumb to have other countries make the goods that are used for national defense

country self sufficiency

they want domestic jobs and to grow as a national superpower w/o helping others grow as well and want to be independent

diversification for stability

1. some countries depend heavily on one good

2. if they diversified and produced more things for their country instead of relying on international trade, they could be more stable

infant industry

baby traders should have tariffs until they grow up and can compete with others (so everyone pays more for their goods)

protections against dumping

1. tariffs are needed so that other countries don’t come and sell for less than their home country and drive out business

2. they also do this when they have a domestic monopoly but want large econ of scale so they also cheaply sell foreign

3. counterarguments: sometimes dumping accusations are really just lower input prices, and other firms usually compete

cheap foreign labor

just because we trade w/ china for cheap goods does not mean our standard of living will go down because we focus on comp adv not abs adv

if abs adv we’d produce anything but that would increase labor costs and decr prod but trading w/ china reverses that

quota economic effects

1. dom cons

   1. incr p, decr q, decr CS

2. dom supplier

   1. ineff prod protected

   2. eff prod gain econ rent

3. intl suppliers

   1. decr q

   2. revenues can incr

4. other dom suppliers

   1. because decr m, the other countries have less of our money to buy our goods

   2. eff exporters harmed

subsidies economic effects

1. dom cons

   1. no change in p or q

2. dom suppliers

   1. ineff prod are protected

   2. some gain econ rent through subsidies

3. intl suppliers

   1. decr q and decr revenue

4. other dom suppliers

   1. less revenue from intl sales

   2. handicapped by ineff firms

5. taxpayers spend taxes on goods they don’t want

determinants of currency markets

1. change in consumer tastes

2. change in relative GDP

3. change in relative PL

4. changes in rel i

5. speculation

disadvantages of flexible exchange rates

1. uncertainty and diminished trade

   1. if rates change, inflation can become loss, or trade won’t occur

2. terms of trade changes: if $ depr, you have to export more to get more for currency cuz that currency now costs more $

3. instability: changes in exchange rates affect US export prod so even domestic prod are affected by nation instability