ECON 1050 Lecture 7: Chapter 7 Notes – Global Markets in Action

82 views3 pages

tanmoose627

3 Dec 2015

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Chapter 7 notes global markets in action. The goods and services we buy from other countries are. The goods and services that we sell to people in other countries are exports. In 2013, global exports and imports were trillion, which is. Comparative advantage = fundamental force that drives international trade, situation in which a person can perform an activity or produce a good or service at a lower opportunity cost than any other nation. In the importing country, the winners are those whose surplus increases and the losers are those whose surplus decreases. Tariff brings in revenue for the government. Quota brings a profit for the importers. Other import barriers: health, safety, and regulation barriers, voluntary export restraints: like a quota allocated to a foreign exporter of a good. Trade restrictions that are protecting domestic industries from foreign competition: Counteracts dumping: occurs when a foreign firm sells its exports at a lower price than its cost of production.

Related Questions

Discuss and explain the difference between the two.

The principle upon which Adam Smith first claimed that free trade benefits all countries. It holds that a country benefits from trade when it produces a particular good at a lower cost (in terms of labor input) than it costs to produce the good in any other country. By specializing the in the production and export of this good and importing goods whose production costs are higher than in other countries, the country can consume more of both goods. In trade theories, this principle was later replaced by the principle of comparative advantages.

Comparative Advantage is first fully stated by David Ricardo in the early nineteenth century, this concept holds that a country has a comparative advantage in a good if it can produce that good more cheaply than it can produce other goods. By specializing in the production of goods in which it holds a comparative advantage and importing the other goods, the country can consume more of all goods. In contrast to Adam Smith, therefore, this principle states that a country need not have an absolute advantage in any good to benefit from trade. The principle provides a powerful justification for liberal international trade by asserting that all countries benefit from such trade.

skybee160

what you think for this ? do you agree or disagree and why ?

I donât think itâs wise for nations to begin raising tariffs and increasing subsidies when we are faced with a global recession. If a smaller country raises tariffs on a good they are importing, it might not have that big effect on the global economy. However, if a country like China, Japan, United States etc. decide to raise tariffs on imports, it could lead to a global increase in the average tariffs. In the article âBarriers to entry: A rise in protectionism would worsen the already grim outlook for world trade,â it talks about the worldwide average for tariffs. In 1986 they average 26%. If the big economies of the world start increasing tariffs, the rest of the world will eventually follow, leading to a global increase on tariffs. A rise in the tariffs would slow down the global economy even more in the long run. In the article it mentions how trade has picked up immensely when tariffs are lower, and the world GDP was higher compared to when tariffs are increased because countries are more willing to trade. I think theyâre still benefits to be gained from trade even when a global recession may be taking place. If tariffs are increased, countries might try to specialize in goods where they donât have a comparative advantage in. Instead of trading for that good, they will try to produce it domestically. The opportunity cost of choosing to specialize in a good when they donât have comparative advantage is using those resources elsewhere. Perhaps for producing a good they do have comparative advantage in. Also a decline in trade because of rising tariffs means firms wouldnât be able to benefit from economies of scale.

what is a key factor that determines a firm's profitability?

A differentiation of a firm's product from other products

B factors affecting a firm's entire market

C a firm's average cost of production relative to that of competing firms

D chance events

E all of the above

economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely, why?

even with international trade, countries rarely specialize completely because

A, all goods and services can be traded internationally

B, some countries would lose as a result of free trade

C, consumers in different countries have homogeneous tastes

D, some countries do not have an absolute advantege producing anything

E, production of most goods involves increasing opportunity costs.

ECON 1050 Lecture 7: Chapter 7 Notes – Global Markets in Action

Document Summary

Get access

Related Documents

ECON 1050 Lecture Notes - Lecture 7: Deadweight Loss, Voluntary Export Restraints, World Trade Organization

ECON 1050 Chapter Notes - Chapter 7: North American Free Trade Agreement, Offshore Outsourcing, Demand Curve

ECON 1050 Chapter 7: ECON Chapter 7

Related Questions