ECON 1000 Chapter Notes - Chapter 7: Export Subsidy, Economic Surplus, Fundamental Interaction
Chapter 7: Global Markets in Action
The goods and services that we buy from other countries are
imports, and the goods and services that we sell to people are our
Comparative Advantage is the fundamental force that drives
international trade. It is the situation in which a person can perform
an activity or produce a good or service at a lower opportunity cost
than anyone else.
National Comparative Advantage is when a national c an perform an
activity or produce a god or service at a lower opportunity cost than
any other nation.
Gains and losses from Imports:
We measure the gains and losses from imports by examining their
effects on consumer surplus, produce surplus, and total surplus.
International Trade Restrictions:
Governments use four sets of tools to influence international trade
and protect domestic industries from foreign competition:
-Other import barriers
Tariffs: A tax on a good that is imposed by the importing country
when an imported good crosses its international boundary.
Import Quotas: is a restriction that limits the maximum quantity of a
good that may be imported in a given period. Import quotas enable
the government to satisfy the self-interest of the people who earn
their incomes in the import-competing industries.
Other Import Quotas: Two sets of policies that influence imports are
health, safety, and regulation barriers and voluntary export
Export Subsidies: A subsidy is a payment by the government to a
producer. An export subsidy is a payment by the government to the
producer of an exported good. Export subsidies are illegal under a
number of international agreements, including NAFTA and the rules
of the WTO.
The Infant-Industry Argument:
The infant industry argument for protection is that it is necessary to
protect a new industry to enable it to grow into a mature industry
that can compete in world markets.
The Dumping Argument:
Dumping occurs when a foreign firm sells its exports at a lower
price than its cost of production. Dumping might be used by a firm
that wants to gain a global monopoly.