ECON 295 Chapter Notes - Chapter 20: Market Power, Comparative Advantage, Protectionism
12 Apr 2017
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Document Summary
Trade policy: a government"s policy involving restrictions placed on international trade. Protectionism: any government policy that interferes with free trade in order to protect domestic firms and workers from foreign competition. Tariff: a tax applied on imports of goods or services. Nontariff barriers (ntbs): restrictions other than tariffs designed to reduced imports. Free trade makes the country as a whole better off, even though it may not make every individual in the country better off. Comparative advantage arise whenever countries have different opportunity costs. Free trade encourages all countries to specialize in producing products in which they have a competitive advantage. Specialization maximizes world production and hence maximizes average world living standards as measured by the world"s per capital gdp. Objectives other than maximizing national income: advantages of diversification. Specialization in the production of only a few products might involve risks that countries are not willing to take. Swings in world prices may lead to large swings in national income.
