ECON1010 Lecture 5: International Trade

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periwinkleturtle731

30 Sep 2018

School

Department

Economics

Course

ECON1010

Professor

Marco Faravelli

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Document Summary

Domestic price represents the equilibrium price that would occur in a country if no international trade is allowed: price of that good if that economy is close. World price represents the equilibrium price on the international market: price of that good in equilibrium only in international market (e. g fruit) A closed economy (a. k. a autarky) is an economy that does not engage in international trade. D is a efficiency gain coming from exports because the farmers are now gaining surplus by selling to china. Society has gained form exporting but there are less consumers. Import tariff: represents a tax on imported goods/services, quarter = maximum amount of goods you can import into a country. World price of a book = (no tariffs to start) Closed economy - would be a higher price. Tariff helps domestic producers to sell more (reduce imports) J goes to the government (because of taxes) I and k are lost due to tariff.

Related Questions

2. Winners and losers from free trade

Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $21. Suppose that the world price for a meeker is $22. Assume that Meekertown is too small to influence the world price for meekers once they enter the international market.

If Meekertown allows free trade, then it will meekers.

Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false.

Statement	True	False
Meekertownian consumers are worse off under free trade than they were before.
Meekertownian producers are worse off under free trade than they were before.

True or False: When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.

True

False

Risk that is common to all assets (e.g., common stocks) of a certain type is referred to as

	systematic risk.
	unsystematic risk.
	idiosyncratic risk.
	structural risk.

In an efficient market with rational expectations, the actual price of an asset

Question 28 options:

	will equal its expected price.
	will often be below its expected price.
	will often be above its expected price.
	equals its expected price plus a random error term.

The efficient markets hypothesis

	assumes that market participants form their expectations adaptively.
	applies rational expectations to the pricing of assets.
	applies to the stock market, but not to the bond market.
	indicates that the stock market is efficient, but not rational.

In recent decades, the United States

	was essentially a closed economy.
	was generally a net borrower of foreign funds.
	was generally a net lender abroad.
	experienced a net outflow of savings.

Ms. Smith has 45% of her money in the stock of Green Corp. and the remainder of her money in Blue Corp. Based on historical data, the standard deviation for Green Corp. stock is 30% and the standard deviation for Blue Corp. is 15%. Security analysts estimate the correlation between Green and Blue as 0.55. What is the standard deviation of Ms. Smith's portfolio?

	0.112
	0.175
	0.037
	0.193

An open economy is one that

	has a large government sector.
	lends and borrows in the international capital market.
	produces mainly agricultural goods.
	produces mainly manufactured goods.

The world real interest rate is

	set annually by a special commission at the United Nations.
	set annually by a special commission at the International Monetary Fund.
	determined in the international capital market.
	determined daily on the New York Stock Exchange.

A small open economy

	is unable to affect the world real interest rate by its borrowing and lending decisions.
	will always be a net borrower from abroad.
	will always be a net lender abroad.
	is almost never able to borrow abroad.

violetleopard499

Q1. Import quotas are
a. methods for reducing imports by limiting the quantity of goods that can enter the country each year
b. voluntary agreements by exporting countries to limit sales in a foreign country
c. subsidies to foreign producers to encourage them to trade
d. none of these

Q2. Devices that set up multiple exchange rates between the currencies of two nations are known as
a. tariff quotas
b. export subsidies
c. exchange controls
d. variable currencies

Q3. The international organization that replaced the General Agreement on Tariffs and Trade (GATT) is the
a. World Bank
b. Export-Import Bank
c. World Trade Organization
d. International Monetary Fund

Q4. Dumping refers to the practice of
a. flooding a foreign market with large quantities of a good
b. selling a product abroad at a price below cost or below the domestic price
c. exporting inexpensive products to foreign countries
d. selling surplus goods abroad with counterfeit brand names

Q5. Countries engage in trade because
a. the exchange is mutually beneficial
b. governments force industries to exchange
c. international law dictates that exchange must take place
d. all of these

Q6. According to the U. S. Department of Commerce, all persons, unrelated or related, who occupy a housing unit comprise
a. a family unit
b. a household
c. an extended family unit
d. group living

Q7. A country with an equal distribution of income will have a higher standard of living than a country with a more unequal distribution of income.
a. true
b. false

Q8. Welfare caseloads tend to fluctuate with
a. business cycles
b. weather
c. stock markets
d. minimum wage rates

Q9. The official poverty threshold line is adjusted annually for
a. income taxes
b. inflation
c. average household size
d. average family size

Q10. For many welfare recipients, taking a job reduces income.
a. true
b. false

Q11. It is true that a stable economy occurs when
a. total injections into the circular flow are large enough to make up for government tax leakages
b. total leakages from the circular flow are great enough to offset the effects of government spending
c. total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow
d. actual saving is equal to planned investment

Q12. The measure of income received by persons from all sources is known as
a. personal income
b. national income
c. gross domestic product
d. net national product

Q13. Discharges of chemicals from a paper plant that pollute a nearby river represent an example of
a. internal costs
b. the underground economy
c. social costs
d. transfer costs

coralrabbit244

ECON1010 Lecture 5: International Trade

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