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International Trade

Introduction to International Trade

Gains from Trade

The United States in the Global Economy

Barriers to Trade

Arguments for and Against Protectionist Policy

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International Trade > Introduction to International Trade

Introduction to International Trade

• Reasons for Trade

• Understanding Production Possibilities

• Defining Absolute Advantage

• Defining Comparative Advantage

• Absolute Advantage Versus Comparative Advantage

• Benefits of Specialization

• Relationship Between Specialization and Trade


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Reasons for Trade

•

International trade is the exchange of capital, goods, and services across international borders or territories.

• Each nation should produce goods for which its domestic opportunity costs are lower than the domestic opportunity costs of other nations and exchange those goods for products that have higher domestic opportunity costs compared to other nations.

• Benefits of trade include lower prices and better products for consumers, improved political ties among nations, and efficiency gains for domestic producers.

International Trade

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Understanding Production Possibilities

•

The production possibilities curve shows the maximum possible production level of one commodity for any production level of another, given the existing levels of the factors of production and the state of technology.

• Points outside the production possibilities curve are unattainable with existing resources and technology if trade does not occur with an external producer.

• Without trade, each country consumes only what it produces. However, because of specialization and trade, the absolute quantity of goods available for consumption is higher than the quantity that would be available under national economic self-sufficiency.

Production Possibilities Frontier




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Defining Absolute Advantage

•

A country that has an absolute advantage can produce a good at lower marginal cost.

• A country with an absolute advantage can sell the good for less than the country that does not have the absolute advantage.

•

Absolute advantage differs from comparative advantage, which refers to the ability to produce specific goods at a lower opportunity cost.

China and Consumer Electronics




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Defining Comparative Advantage

•

Even if one country has an absolute advantage in the production of all goods, it can still benefit from trade.

• Countries should import goods if the opportunity cost of importing is lower than the cost of producing them locally.

•

Specialization according to comparative advantage results in a more efficient allocation of world resources. A larger quantity of outputs becomes available to the trading nations.

•

Competitive advantage is distinct from comparative advantage because it has to do with distinguishing attributes which are not necessarily related to a lower opportunity cost.

Comparative Advantage




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Absolute Advantage Versus Comparative Advantage

•

The producer that requires a smaller quantity inputs to produce a good is said to have an absolute advantage in producing that good.

• Comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another.

•

The existence of a comparative advantage allows both parties to benefit from trading, because each party will receive a good at a price that is lower than its opportunity cost of producing that good.

Absolute Advantage




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Benefits of Specialization

•

Whenever countries have different opportunity costs in production they can benefit from specialization and trade.

• Benefits of specialization include greater economic efficiency, consumer benefits, and opportunities for growth for competitive sectors.

•

The disadvantages of specialization include threats to uncompetitive sectors, the risk of over-specialization, and strategic vulnerability.




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Relationship Between Specialization and Trade

•

Nations decide whether they should export or import goods based on comparative advantages.

• Generally, nations can consume more by specializing in a good and trading it for other goods.

•

When countries decide which country will specialize in which product, the essential question becomes who could produce the product at a lower opportunity cost.





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International Trade > Gains from Trade

Gains from Trade

• Exports: The Economic Impacts of Selling Goods to Other Countries

• Imports: The Economics Impacts of Buying Goods from Other

Countries

• Costs of Trade





Exports: The Economic Impacts of Selling Goods to Other

Countries

•

Export is defined as the act of shipping goods and services out of the port of a country.

• Legal restrictions and trade barriers are in place internationally to control trade, whether goods are being exported or imported.

•

When legal restrictions and trade barriers are lessened or lifted the producer surplus increases and so does the amount of the goods and services that are exported from the country.

•

Exporting allows a country's producers to gain ownership advantages and develop low-cost and differentiated products.

• Due to an extra layer in the chain of distribution which squeezes the margins, exporters may have to offer lower prices to the importers than to domestic wholesalers in order to move their product and generate business.

Exports



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Imports: The Economics Impacts of Buying Goods from Other

Countries

•

Imports are defined as purchases of good or services by a domestic economy from a foreign economy.

• Protectionism is the economic policy of restraining trade between countries through tariffs on imported goods, restrictive quotas, and government regulations.

•

In most countries, international trade and importing goods represents a significant share of the gross domestic product (GDP).

• International trade is generally more expensive than domestic trade due to additionally imposed costs, taxes, and tariffs.

•

On a business level, companies take part in direct-imports; a major retailer imports goods from an overseas manufacturer in order to save money.

Imports



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Costs of Trade

•

Free trade eliminates export tariffs, import quotas, and export quotas; all of which cause more losses than benefits for a country.

• With free trade in place the producers in exporting countries and the consumers in importing countries all benefit.

•

One of the main disadvantages is the selective application of free trade.

Economic inefficiency can be created through trade diversion.

• Trade restricts displaces workers, makes overcoming unemployment challenging, increases economic inequality, and can lower wages.

•

When free trade is applied to only the high cost producer it can lead to trade diversion and a net economic loss.

• Another disadvantage is that by increasing returns to scale, can cause certain industries to settle in an geographically area where there is not comparative advantage.

Tariffs



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International Trade > The United States in the Global Economy

The United States in the Global Economy

• The Importance of Trade

• The Balance of Trade





The Importance of Trade

•

The international market serves as an important place for the exchange of goods and services.

• Economic theory shows that there are gains from trade for both countries involved.

•

Advances in transportation has dramatically reduced the costs of moving goods around the globe.

• Technological advances have made international production and trade easier to coordinate.

•

Trade barriers between countries have fallen and are likely to continue to fall.

Silk Road Trade



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The Balance of Trade

•

A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap.

• Factors that can affect the balance of trade include the currency exchange rate, cost of inputs, barriers to trade such as tariffs and regulations, and the prices of domestic goods.

• The twin deficits hypothesis contends that there is a strong positive relationship between a national economy's current account balance and its government budget balance.

Twin Deficits in the US



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International Trade > Barriers to Trade

Barriers to Trade

• Tariffs

• Quotas

• Other Barriers





Tariffs

•

Tariffs can be levied on goods being imported in a country (import tariff), or exported from a country (export tariff). They may be levied in order to protect domestic producers (protective tariff), or to raise revenue for the government

(revenue tariff).

•

Specific tariffs levy a fixed duty on a good. Ad valorem tariffs are based on a percentage of the good's value. Compound tariffs are a combination of specific and ad valorem tariffs.

•

Tariffs often increase domestic producer surplus and the quantity of a good supplied domestically, but hurt domestic consumer surplus.

Effects of a Tariff



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Quotas

•

There are two types of quotas: absolute and tariff-rate. Absolute quotas are quotas that limit the amount of a specific good that may enter a country. Tariffrate quotas allow a quantity of a good to be imported under a lower duty rate; any amount above this is subject to a higher duty.

•

Justifications for the use of quotas include protection for domestic employment and infant industries, protection against unfair foreign trade practices, and protection of national security.

•

Quotas often hurt domestic consumers and benefit domestic producers. Quotas may also provide incentives for administrative corruption and smuggling.

Sugar: Tariff-Rate Barriers



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Other Barriers

•

Specific limitations to trade barriers include local content requirements and embargoes. This category of barriers comes from trade regulations.

• Customs and administrative procedure barriers include bureaucratic red tape and anti-dumping practices. This category of barriers comes from government procedures.

• Governmental participation barriers include government procurement programs, export subsidies, and countervailing duties. This category of barriers involves the direct participation of government in trade.

•

Technical barriers to trade include sanitary regulations, measurement and labeling standards, and ingredient standards. This category of barriers involves health, safety, and measurement standards.



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International Trade > Arguments for and Against Protectionist Policy

Arguments for and Against Protectionist Policy

• National Security Argument

• Infant Industry Argument

• Unfair Competition Argument

• Jobs Argument

• A Summary of International Trade Agreements





National Security Argument

•

Economic interdependence and globalization has resulted in a unique capitalistic system, where each country is largely dependent upon other countries for economic sustainability.

• It has been noted, somewhat intuitively and empirically, that conflict reduces trade. This highlights the risk of conflict harming an economy.

• A more specific context for trade and conflict can be the way in which trade is complicated during wartime. Indeed, trade during wartime can be a substantial threat to a nation, as economic levers such as sanctions can be utilized.

•

Iran and North Korea are strong modern examples as well as the recent history of the U.S.-Iraq war. All of these economies struggle(d) against harsh economic sanctions.

• Combining these ideas, it is clear that there is substantial national security value to trade protectionism.

Infant Mortality in Iraq During Sactions



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Infant Industry Argument

•

Trade protectionism is national policies restricting international economic trade to alter the balance between imports and goods manufactured domestically through import quotas, tariffs, taxes, anti-dumping legislation, and other limitations.

• The primary advantage to countries with higher economic power and bigger corporations is simply economies of scale, which infant industries in developing countries often protect against.

• The United States was employing heavy tariffs to protect their fragile economic system as the economy began to achieve autonomy after British rule, which proved effective.

• From a broader and more far-reaching perspective, protectionism as a general principle has been heavily criticized (even in infant industry situations). The argument is that free markets add value on a global level, while protectionism confines economic value to the nation employing it.

Economies of Scale



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Unfair Competition Argument

•

Protectionist policies are a highly charged topic in economic debates, as economies work to attain the optimal balance of free trade and trade protectionism to capture the most value.

• A recent topic is anti-dumping policies directed at international players looking to undercut domestic business through selling at dramatically reduced prices.

• Another critical risk in the global market is intellectual property (IP) protection as patents are often ignored globally, particularly by countries which lack the infrastructure to enforce IP laws.

•

Another unfair competition threat is the emergence of global monopolies. Some of the larger ones attain enough global power and geographic diversification to be difficult to break up via domestic anti-trust laws.

Economic Losses in a Monopoly



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Jobs Argument

•

This argument is predicated on the simply fact that buying more domestically will drive up national production, and that this increased production will in turn result in a healthier domestic job market.

• Local governments leverage subsidies, tariffs, import quotas, and anti-dumping policies to maximize strategic capacity domestically, thus creating jobs.

• A sentiment towards protectionism has developed in the U.S. due to the jobs argument in view of an imbalanced trade ratio, where more exports (production and jobs at home) is required to sustain the ongoing consumption of imports.

•

Along similar lines, it is common practice for companies to identify strategic alliances abroad and send much of the production work to these locations

(outsourcing), motivating governments to bring these jobs back home.

• Local governments leverage subsidies, tariffs, import quotas, and anti-dumping policies to maximize strategic capacity domestically, thus creating jobs.

Trade Balances on a Global Scale



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A Summary of International Trade Agreements

•

International trade encounters a variety of obstacles which reduce trade incentives. This is usually through tariffs, quotas, taxes, and other trade restrictions.

• The WTO is the largest international trade organization, replacing the General

Agreement on Tariffs and Trade (GATT) in 1995, designed to enable international trade while reducing unfair practices.

• NAFTA is a trilateral agreement between the United States, Canada and Mexico designed to minimize any trade or investment barriers between any of these countries (primarily in the form of tariffs).

• The APEC forum is a cooperative discussion between 21 countries in the Pacific

Rim region promoting free trade, with a focus on newly industrialized economies

(NIE).

WTO Members



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Appendix


International Trade

Key terms

• Absolute advantage

The capability to produce more of a given product using less of a given resource than a competing entity.

• Absolute advantage The capability to produce more of a given product using less of a given resource than a competing entity.

• absolute quota A limitation of the quantity of certain goods that may enter commerce during a specific period.

• Autarky National economic self-sufficiency.

• comparative advantage The ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another.



• comparative advantage

The ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another.

• comparative advantage The ability of a party to produce a particular good or service at a lower margin and opportunity cost over another.

• competitive advantage Something that places a company or a person above the competition

• countervailing duty

A tax levied on an imported article to offset the unfair price advantage it holds due to a subsidy paid to producers or exporters by the government of the exporting country if such imports cause or threaten injury to a domestic industry.

• Dumping

Selling goods at less than their normal price, especially in the export market.


International Trade

• Dumping

Selling goods at less than their normal price, especially in the export market as a means of securing a monopoly.

• Dumping Selling goods at less than their normal price, especially in the export market as a means of securing a monopoly.

• embargo A ban on trade with another country.

• export Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade.

• Foreign direct investment

Investment into production or business in a country by an individual or company of another country.

• free trade International trade free from government interference, especially trade free from tariffs or duties on imports.

• import

To bring (something) in from a foreign country, especially for sale or trade.

• Import Quota A restriction on the import of something to a specific quantity.

• Nascent Emerging; just coming into existence.

• net capital outflow

The net flow of funds being invested abroad by a country during a certain period of time.

• net exports The difference between the monetary value of exports and imports.

• Opportunity cost The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative.


International Trade

• Opportunity cost

The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative.

• production possibilities curve

The various combinations of amounts of two commodities that could be produced using the same fixed total amount of each of the factors of production

• Production possibilities frontier A graph that shows the combinations of two commodities that could be produced using the same total amount of each of the factors of production.

• protectionism A policy of protecting the domestic producers of a product by imposing tariffs, quotas or other barriers on imports.

• quota A restriction on the import of something to a specific quantity.

• Reverse engineering

The process of analyzing the construction and operation of a product in order to manufacture a similar one.

• sanction

A penalty, or some coercive measure, intended to ensure compliance; especially one adopted by several nations, or by an international body.

• Self-sufficiency Able to provide for oneself independently of others.

• Subsidies

Financial support or assistance, such as a grant.

• tariff A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

• tariff A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

• tariff

A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.


International Trade

• tariff-rate quota

Allows a specified quantity of imported goods to be entered at a reduced rate of duty during the quota period, with quantities entered in excess of the quota limit subject to a higher duty rate.

• trade

Buying and selling of goods and services on a market.

• trade Buying and selling of goods and services on a market.

• Trade Balance The difference between the monetary value of exports and imports in an economy over a certain period of time.

• welfare

Health, safety, happiness and prosperity; well-being in any respect.


International Trade

International Trade

Countries benefit from producing goods in which they have comparative advantage and trading them for goods in which other countries have the comparative advantage.


Wikimedia.

"CMA CGM Balzac." CC BY-SA https://commons.wikimedia.org/wiki/File:CMA_CGM_Balzac.jpg View on Boundless.com

International Trade

Production Possibilities Frontier

If production is efficient, the economy can choose between combinations on the PPF. Point X, however, is unattaible with existing resources and technology if trade does not occur.


Wikipedia.

"Production Possibilities Frontier Curve." CC BY-SA https://en.wikipedia.org/wiki/File:Production_Possibilities_Frontier_Curve.svg View on

Boundless.com

International Trade

Absolute Advantage

Party B has an absolute advantage in producing widgets. It can produce more widgets with the same amount of resources than Party A.


Wikimedia.

"Absolute advantage example 1." CC BY http://commons.wikimedia.org/wiki/File:Absolute_advantage_example_1.png View on Boundless.com

International Trade

China and Consumer Electronics

Many consumer electronics are manufactured in China. China can produce such goods more efficiently, which gives it an absolute advantage relative to many countries.


Wikimedia.

"Iphone 4G-3 des screen." CC BY-SA https://commons.wikimedia.org/wiki/File:Iphone_4G-3_des_screen.png View on Boundless.com

International Trade


Chiplandia has a comparative advantage in producing computer chips, while Entertainia has a comparative advantage in producing CD players. Both nations can benefit from trade.


Wikimedia.

"Comparative Advantage." CC BY https://commons.wikimedia.org/wiki/File:Comparative_Advantage.jpg View on Boundless.com

International Trade

Absolute Advantage

Country A has an absolute advantage in making both food and clothing, but a comparative advantage only in food.


Wikimedia.

"Absolute advantage." CC BY-SA https://commons.wikimedia.org/wiki/File:Absolute_advantage.jpg View on Boundless.com

International Trade


Tom has the comparative advantage in producing ketchup, while Bob has the comparative advantage in producing mustard.


Wikimedia.

"Comparative advantage 2." CC BY-SA https://commons.wikimedia.org/wiki/File:Comparative_advantage_2.jpg View on Boundless.com

International Trade

Exports

The map shows the primary exporters for countries around the globe. The colors indicate the leading merchandise export destination for the indicated country (the United States main export destination is the European Union). Exporting is the act of shipping goods and services to other countries.


Wikipedia.

"Key export markets." CC BY-SA http://en.wikipedia.org/wiki/File:Key_export_markets.png View on Boundless.com

International Trade

Imports

The map shows the largest importers on an international scale. The color indicates the leading source of merchandise imports for the indicated country

(the United States' imports the largest percentage of its goods from China). Imports account for a significant share in the gross domestic product (GDP) of a country.


Wikipedia.

"Key import sources." CC BY-SA http://en.wikipedia.org/wiki/File:Key_import_sources.png View on Boundless.com

International Trade

Tariffs

This image shows what happens to societal welfare when free trade is not enacted. Tariffs cause the consumer surplus (green area) to decrease, while the producer surplus (yellow area) and government tax revenue (blue area) increase. The amount of societal loss (pink area) is larger than any benefits experienced by the producers and government. Free trade does not have tariffs and results in net gain for society.


Wikipedia.

"EffectOfTariff." CC BY-SA http://en.wikipedia.org/wiki/File:EffectOfTariff.svg View on Boundless.com

International Trade

Silk Road Trade

Even in ancient times, people benefited from widespread international trade. The benefits from international trade have increased as costs decline and the international system becomes better integrated.


Wikipedia.

"Silkroutes." Public domain http://en.wikipedia.org/wiki/File:Silkroutes.jpg View on Boundless.com

International Trade

Twin Deficits in the US

In the U.S., net borrowing has tended to have a direct relationship with net imports. The red line represents net imports, which is equivalent to the negative balance of trade, and the black line represents net borrowing, which is equivalent to the government budget deficit. Although the two are not identical, a rise in one tends to accompany a rise in the other, and vice versa.


Wikipedia.

"TwinE." GNU FDL http://en.wikipedia.org/wiki/File:TwinE.PNG View on Boundless.com

International Trade

Effects of a Tariff

When a tariff is levied on imported goods, the domestic price of the good rises. This benefits domestic producers by increasing producer surplus, but domestic consumers see a small consumer surplus.


Wikipedia.

"Tariff." Public domain http://en.wikipedia.org/wiki/File:Tariff.JPG View on Boundless.com

International Trade

Sugar: Tariff-Rate Barriers

In the US, the import of sugar is regulated by tariff-rate barriers. In 2012, the US allowed over 150,000 tons of raw cane sugar to be imported from Brazil at a reduced tariff rate.


Wikimedia.

"Raw cane sugar light." CC BY-SA http://commons.wikimedia.org/wiki/File:Raw_cane_sugar_light.JPG View on Boundless.com

International Trade

Infant Mortality in Iraq During Sactions

This graphic underlines the indirect consequences of employing economic levers (i.e. sanctions) in a militaristic fashion during a conflict. While the justification for these figures is complex, including other war-related factors, the correlation is quite clear. Diminishing a country's economic prospects will in turn result in loss of life, particularly in developing nations.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/en/3/3f/Iraq-infant-mortality.png View on Boundless.com

International Trade

GDP by Country

This map demonstrates the vast difference in overall economic power across the globe, underlining the inequities that need to be addressed in economic policy formulation.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/0/08/Map_of_countries_by_GDP_%2528nominal%2529_in_US%2524.png View on

Boundless.com

International Trade

Economies of Scale

The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market. Infant industries generally do not have the capacity to do this.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/3/38/Economies_of_scale.PNG View on Boundless.com

International Trade

Economic Losses in a Monopoly

This chart highlights the very real risk of lost economic value in a monopolistic situation (deadweight loss in yellow).


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/e/ef/Monopoly-surpluses.svg View on Boundless.com

International Trade

Trade Balances on a Global Scale

It is interesting to look at this graph and assess the extremity to which some nations are 'consumer nations' and others are 'producer nations. ' The U.S. and China are a great example of opposite sides of the spectrum, where the trade balance is heavily on one side of the spectrum.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/3/32/Cumulative_Current_Account_Balance.png View on Boundless.com

International Trade

WTO Members

The World Trade Organization (WTO) is an organization designed to oversee and enable international trade. This map shows how successful this has been on a global scale.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/9/93/World_Trade_Organization_negotiations.svg View on Boundless.com

International Trade

APEC Participants

The Asia-Pacific Economic Cooperation (APEC) is a forum of 21 countries in the Pacific Rim region, focusing on free trade and economic cooperation.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/en/e/ed/APEC_enlargement.png View on Boundless.com

International Trade

NAFTA Participants

This map outlines each of the countries involved in the North American Free Trade Agreement, an international trade agreement focused on a geographic proximity.


Wikimedia.

CC BY-SA http://upload.wikimedia.org/wikipedia/commons/a/a6/North_American_Agreement_%2528orthographic_projection%2529.svg View on

Boundless.com

International Trade

Which of the following is NOT a benefit from international trade?

A) Increased comparative advantage

B) More choices for consumers

C) Improved returns to investment in research and development

D) Improved resource allocation


International Trade

Which of the following is NOT a benefit from international trade?

A) Increased comparative advantage

B) More choices for consumers

C) Improved returns to investment in research and development

D) Improved resource allocation


Boundless - LO.

"Boundless." CC BY-SA 3.0 http://www.boundless.com/

International Trade

Fill in the blank. The gains from trade enables _______________ the production possibility frontier.

A) Production outside

B) Consumption inside

C) Production inside

D) Consumption outside


International Trade

Fill in the blank. The gains from trade enables _______________ the production possibility frontier.

A) Production outside

B) Consumption inside

C) Production inside

D) Consumption outside


Saylor OER.

"Economics « Saylor.org – Free Online Courses Built by Professors."

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International Trade

Imagine Firm A has an absolute advantage in cereal production over Firm B. If both firms are producing 10 boxes of cereal an hour, what is true about the marginal cost of the 11th box of cereal?

A) The marginal cost is lower for firm B than firm A

B) The marginal cost is lower for Firm A than Firm B

C) The marginal cost is the same for both firms

D) The marginal cost is not related to absolute advantage


International Trade

Imagine Firm A has an absolute advantage in cereal production over Firm B. If both firms are producing 10 boxes of cereal an hour, what is true about the marginal cost of the 11th box of cereal?

A) The marginal cost is lower for firm B than firm A

B) The marginal cost is lower for Firm A than Firm B

C) The marginal cost is the same for both firms

D) The marginal cost is not related to absolute advantage


Boundless - LO.


International Trade

There are two goods (bread and shirts) and two factors of production (labor and capital). Bread is capital-intensive, while shirts are labor-intensive. Country A is abundant in labor; Country

B is abundant in capital. Under free trade, which is true?

A) Country A will export shirts, while country B will export bread.

B) Country A will export bread, while country B will export shirts.

C) Country A will export both bread and shirts.

D) Country B will export both bread and shirts.


International Trade

There are two goods (bread and shirts) and two factors of production (labor and capital). Bread is capital-intensive, while shirts are labor-intensive. Country A is abundant in labor; Country

B is abundant in capital. Under free trade, which is true?

A) Country A will export shirts, while country B will export bread.

B) Country A will export bread, while country B will export shirts.

C) Country A will export both bread and shirts.

D) Country B will export both bread and shirts.


Saylor OER.

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CC BY 3.0 http://www.saylor.org/majors/Economics/

International Trade

What is the difference between absolute advantage?

A) A country can have a comparative advantage even if it does not have an absolute advantage.

B) Absolute advantage is necessary for trade, while comparative advantage is not.

C) Countries with a comparative advantage must have an absolute advantage, but not vis versa.

D) None of these answers.


International Trade

What is the difference between absolute advantage?

A) A country can have a comparative advantage even if it does not have an absolute advantage.

B) Absolute advantage is necessary for trade, while comparative advantage is not.

C) Countries with a comparative advantage must have an absolute advantage, but not vis versa.

D) None of these answers.


Boundless - LO.


International Trade

Which one of the following is a benefit of specialization?

A) Countries can take advantage of economies of scale.

B) Consumers benefit from lower prices since goods are produced more efficiently.

C) Countries can trade for the good in which they do not have a comparative advantage.

D) All of these answers.


International Trade

Which one of the following is a benefit of specialization?

A) Countries can take advantage of economies of scale.

B) Consumers benefit from lower prices since goods are produced more efficiently.

C) Countries can trade for the good in which they do not have a comparative advantage.

D) All of these answers.


Boundless - LO.


International Trade

What do countries consider when deciding to specialize?

A) Their absolute advantage

B) Their level of economic development

C) Their comparative advantage

D) Their level of efficiency


International Trade

What do countries consider when deciding to specialize?

A) Their absolute advantage

B) Their level of economic development

C) Their comparative advantage

D) Their level of efficiency


Boundless - LO.


International Trade

Assume that France lifts trade barriers that prevented wine makers from exporting wine. What would you expect to happen?

A) Consumer surplus grows

B) Producer surplus grows

C) Total surplus shrinks

D) Total surplus stays the same


International Trade

Assume that France lifts trade barriers that prevented wine makers from exporting wine. What would you expect to happen?

A) Consumer surplus grows

B) Producer surplus grows

C) Total surplus shrinks

D) Total surplus stays the same


Boundless - LO.


International Trade

What will happen to a good if a country transitions from a policy of protectionism to a policy of free trade and begins importing goods from abroad?

A) Prices will decrease and the quantity consumed will decrease

B) Prices will increase and the quantity consumed will increase

C) Prices will decrease and the quantity consumed will increase

D) Prices will increase and the quantity consumed will decrease


International Trade

What will happen to a good if a country transitions from a policy of protectionism to a policy of free trade and begins importing goods from abroad?

A) Prices will decrease and the quantity consumed will decrease

B) Prices will increase and the quantity consumed will increase

C) Prices will decrease and the quantity consumed will increase

D) Prices will increase and the quantity consumed will decrease


Boundless - LO.


International Trade

Which groups benefit from free trade policies?

A) Producers of the exported good in exporting countries and consumers in importing countries

B) Producers of the exported good in importing countries and consumers in exporting countries

C) All groups in importing countries

D) All groups in exporting countries


International Trade

Which groups benefit from free trade policies?

A) Producers of the exported good in exporting countries and consumers in importing countries

B) Producers of the exported good in importing countries and consumers in exporting countries

C) All groups in importing countries

D) All groups in exporting countries


Boundless - LO.


International Trade

Which of these caused the United States' rapid growth of trade with other countries after WWII?

A) More favorable government policies

B) Transportation advancement

C) All of these answers

D) Technological improvement


International Trade

Which of these caused the United States' rapid growth of trade with other countries after WWII?

A) More favorable government policies

B) Transportation advancement

C) All of these answers

D) Technological improvement


Boundless - LO.


International Trade

Balance of trade is measured using _________ (1), and the trade deficit is equivalent to the _________ (2).

A) "In-country production" (1); net exports (2)

B) "In-country production" (1); trade gap (2)

C) Net exports (1); trade gap (2)

D) Net exports (1); "in-country production" (2)


International Trade

Balance of trade is measured using _________ (1), and the trade deficit is equivalent to the _________ (2).

A) "In-country production" (1); net exports (2)

B) "In-country production" (1); trade gap (2)

C) Net exports (1); trade gap (2)

D) Net exports (1); "in-country production" (2)


Boundless - LO.


International Trade

What group benefits from the introduction of a tariff?

A) Domestic consumers

B) Foreign exporters

C) Foreign importers

D) Domestic producers


International Trade

What group benefits from the introduction of a tariff?

A) Domestic consumers

B) Foreign exporters

C) Foreign importers

D) Domestic producers


Boundless - LO.


International Trade

In generally, the effect of a quota on the domestic economy is a(n)

____________.

A) increase in producer surplus, decrease in consumer surplus, and increase in total surplus

B) decrease in producer surplus, increase in consumer surplus, and decrease in total surplus

C) decrease in producer surplus, increase in consumer surplus, and increase in total surplus

D) increase in producer surplus, decrease in consumer surplus, and decrease in total surplus


International Trade

In generally, the effect of a quota on the domestic economy is a(n)

____________.

A) increase in producer surplus, decrease in consumer surplus, and increase in total surplus

B) decrease in producer surplus, increase in consumer surplus, and decrease in total surplus

C) decrease in producer surplus, increase in consumer surplus, and increase in total surplus

D) increase in producer surplus, decrease in consumer surplus, and decrease in total surplus


Boundless - LO.


International Trade

A certain breed of bananas is not allowed to be imported in a country due to the high probability the bananas will harbor an invasive species of spider. This represents which of the following types of trade barriers?

A) Bureaucratic delays

B) Phytosanitary measures

C) Labeling standards

D) Anti-dumping duties


International Trade

A certain breed of bananas is not allowed to be imported in a country due to the high probability the bananas will harbor an invasive species of spider. This represents which of the following types of trade barriers?

A) Bureaucratic delays

B) Phytosanitary measures

C) Labeling standards

D) Anti-dumping duties


Boundless - LO.


International Trade

It has been argued that achieving self-sufficiency during wartime is unnecessary because __________.

A) it is too expensive to try to achieve self-sufficiency

B) friendly nations will still be willing to trade during wartime

C) there is no certainty that domestic industries would be able to achieve self-sufficiency

D) it is possible for a country to have all the natural resources necessary to achieve self-sufficiency


International Trade

It has been argued that achieving self-sufficiency during wartime is unnecessary because __________.

A) it is too expensive to try to achieve self-sufficiency

B) friendly nations will still be willing to trade during wartime

C) there is no certainty that domestic industries would be able to achieve self-sufficiency

D) it is possible for a country to have all the natural resources necessary to achieve self-sufficiency


Boundless - LO.


International Trade

How should implementing trade protection policies support new domestic industries?

A) It allows local industries time to achieve economies of scale that makes them globally competitive

B) It allows local industries to dominate the local market and make profits

C) It encourages citizens to consume locally produced goods and services

D) It disrupts the business of a foreign company in the same industry


International Trade

How should implementing trade protection policies support new domestic industries?

A) It allows local industries time to achieve economies of scale that makes them globally competitive

B) It allows local industries to dominate the local market and make profits

C) It encourages citizens to consume locally produced goods and services

D) It disrupts the business of a foreign company in the same industry


Boundless - LO.


International Trade

Which of these pairs of words fit in the following sentence?

_________(1) lower(s) the cost of production and can cause

________(2) when a good is sold.

A) subsidies (1); markups (2)

B) discounts (1); dumping (2)

C) subsidies (1); dumping (2)

D) dumping (1); discounts (2)


International Trade

Which of these pairs of words fit in the following sentence?

_________(1) lower(s) the cost of production and can cause

________(2) when a good is sold.

A) subsidies (1); markups (2)

B) discounts (1); dumping (2)

C) subsidies (1); dumping (2)

D) dumping (1); discounts (2)


Boundless - LO.


International Trade

What does the Jobs Argument advocate?

A) Increased trade protection to reduce foreign competition.

B) Increased trade protection to reduce foreign consumption.

C) Increased tariffs to reduce the balance of trade.

D) Increased quotas to promote becoming a 'producer nation'.


International Trade

What does the Jobs Argument advocate?

A) Increased trade protection to reduce foreign competition.

B) Increased trade protection to reduce foreign consumption.

C) Increased tariffs to reduce the balance of trade.

D) Increased quotas to promote becoming a 'producer nation'.


Boundless - LO.


International Trade

The General Agreement on Tariffs and Trade (GATT) eventually transformed into which of the following?

A) NAFTA

B) APEC

C) NIE

D) WTO


International Trade

The General Agreement on Tariffs and Trade (GATT) eventually transformed into which of the following?

A) NAFTA

B) APEC

C) NIE

D) WTO


Boundless - LO.


International Trade

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