EC120 Lecture Notes - Lecture 8: Comparative Advantage, Import Quota, Market Power

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Pw = the world price of a good, the price that prevails in world markets. Country has comparative advantage in the good. Under free trade, country exports the good. Country does not have a comparative advantage. Under free trade, country imports the good. A small economy is a price taker in world markets: its actions have no effect on pw. Canada suits the de nition of a small economy. No seller would accept less than pw, since good could be sold for pw in world markets. No buyer would pay more than pw, since he could buy the good for pw in world markets. Whether a good is imported or exported, trade creates winners and losers. Producers sell to a larger market, may achieve lower costs by producing on a larger scale. Competition from abroad may reduce market power of domestic rms, which would increase total welfare.

Related Questions

1. An import tariff

a. lowers the domestic price of the exported good below the world price.

b. keeps the domestic price of the exported goods the same as the world price.

c. raises the domestic price of the imported good above the world price

d. lowers the domestic price of the imported good below the world price.

2. Which two accounts are included in the balance of payments:

a. current account and the reserve account.

b. current account and the trade account.

c. current account and the capital account.

d. trade account and the capital account.

3. A producer has a comparative advantage in the production of a good when the producer:

a. has a production cost that is less than sales revenue.

b. has the highest cost of production compared to any other producer.

c. is comparatively more efficient at producing the good than it is at producing anything else.

d. specializes through the use of an assembly line.

4. According to the Fischer effect, if the "real" rate of interest in a country is 4 percent and expected annual inflation is 9 percent, the "nominal" interest rate will be _____.

5 percent

B.	13 percent

9 percent

36 percent

bluetortoise611

Question 1

In 2003, the ________ ruled that U.S. tariffs on steel imported from the EU were unfair and allowed the EU to issue retaliatory tariffs on U.S. products.

World Trade Organization

United Nations

European Central Bank

International Human Rights Commission

Question 2

The idea of the U.S.-Canadian Free-Trade Agreement that ________ barriers to trade including tariffs and quotas between the United States and Canada by 1998 was to increase the amount that the United States exports to Canada and the amount that the United States imports from Canada.

increased all

removed some

removed all

increased some

Question 3

According to the theory of comparative advantage, a country should specialize and ________ goods with ________ opportunity cost.

import; the lowest

import; negative

export; the lowest

export; the highest

Question 4

A quota is a restriction on imports.

True

False

Question 5

If Holland decreases subsidies to its tulip growers, the price of tulips in the United States will rise.

True

False

Question 6

According to comparative advantage, trade between two countries allows ________ of the trading countries to use its resources most efficiently.

only the smaller

only the larger

neither

each

Question 7

________ U.S. president(s) who has/have held office since GATT was signed has argued for free-trade policies, yet each one has used his powers to protect various sectors of the economy.

Only one

No

Every

Only 3

Question 8

In 1991, the European Union began the process of forming the

		largest free-trade zone in the world.
		only continental military force in the world.
		first international trade agreement in the world.
		first unified currency in the world.

Question 9
1. The Smoot-Hawley tariff set off an international trade war in the
  
  1930s.
  
  1950s.
  
  1970s.
  
  1990s.
  
  Please help me with these questions Thank you.

magentadeer293

EC120 Lecture Notes - Lecture 8: Comparative Advantage, Import Quota, Market Power

EC120 Full Course Notes

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