ECON 111 Lecture Notes - Lecture 12: Autarky, Free Trade, Comparative Advantage
27 Nov 2018
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Trade policy- tariffs, quotas and strategic markets: determination of trade patterns, the law of one price: when an easily transported product is internationally traded, arbitrage will guarantee a single world price. Countries may export goods whose world price (pw) exceeds the autarkic price (pd). Nb: small country price adapts to world price: countries may import goods who autarkic price exceeds world price. Is comparative advantage exogenous: comparative advantage (ca) is determined by factors beyond public policy, and is not supported by empirical evidence, govt policies may influence patterns of ca, though not necessarily advisable. Private investors face higher risk with it"s own money where government faces low risk with tax payer dollars. Terms of trade = index of export prices x 100. Rise in the index= a country gets more imports per unit of exports and it is a favorable change for the country. Protectionism: any policy designed to protect domestic industries from foreign competition.
