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  • What is the unhindered movement of goods and services across national boundaries?

    Free trade

    What is the goal of the WTO?

    To help resolve trade disputes among its members and to reduce obstacles to free trade around the world. The long term foal of the WTO is to remove all barriers to exports and imports in order to encourage amount national the specialization and trade that have been so successful within nations.

    how many countries have joined the WTO?


    What are the Doha Rounds?

    A decadeslong negotiaions to reduce trade barriers around the world-- sponsored by the WTO. They got nowhere with each new proposal eliciting strong objections tomr a variety of national governments.

    National specialization and enchant can expand world living standards through _______+_____.

    free internaiontal trade

    The citizens of every nation could improve their economic welfare by specializing in the production of goods in which they had _______________ and exporting them to other countries.

    an absolute advantage in

    A national has a comparative advantage in producing a good if it can produce it at a lower opportunity cost than some other countries.


    Before international trade occurs, we assume (arbitrarily) that both countrys are operating in the middle of their respective PPF's/


    Consumption per year:

    without trade, you can only consume what you produce.

    When countries specialize according to their comparative advantage, the world's resources...

    are used more efficiently, enabling greater production of every good.

    When two countries specialize in their comparative advantage good, they produce, more of the good but none of the other.


    When countries specialize according to their comparative advantage, the world's resources are used...

    more efficiently, enabling greater production of every good.

    When two countries specialize in their comparative advantage good..

    they produce more of that good but non of the other. Each country can consume more of each good.

    See page 498

    For info about comparative advantage country calculations

    What is the ratio at which a country can trade domestically produced products for foreign-produced products? The quantity of one good that is exchanged for one unit of the other.

    Terms of Trade

    For the world as a whole, the gains from international trade are due to increased production as nations specialize according to comparative advantage.

    How those world gains are distributed among specific countries depends on the terms of trade.

    Provisos about specialization (p.500)

    Costs of trading
    Sizes of countries
    Increasing opportunity cost
    Government Barriers to Trade

    A country that i relatively abundant in any of these resources will ten to have a

    comparative advantage in those goods that use relatively large quantities of that resource.

    Canada is a good example of comparative advantage without absolute advantage:

    It grows a lot of tiber, not because it can do so using fewer resources than other countries , but because its land is even more poorly suited to growing other things.

    Countries often develop strong comparative advantage in goods they have produced in the past,


    Explanation of who looses and wins with free trade.

    p. 505

    International trade according to comparative advantage maker each country as a whole better off:

    It increases total world production and enables consumers to enjoy greater quantities of goods and services.

    For any particular good or service, the costs from expanded trade are highly concentrated among relatively few parties, while the benefits are widely dispersed among many.

    As a result, those harmed by inter nation trade generally have more incentive to mobilize and lobby than those who benefit.

    What is an "all or nothing" trade deal?

    The agreement must be approved or rejected as a whole, without any amendments that make exceptions for specific industries.

    Industries as importers:

    Walmart has lobbied for free trade

    When governments decide to accommodate the opponents of free trade, they are apt to use one of two devices to restrict trade:

    tariffs or quotas

    A tariff is a tax on ________ goods.


    What is a limit on the physical quantity of imports?


    A tariff reduces trh volume of trade and raises the domestic price of an imported good.

    In the country that imposes the tariff, producers of the good gain, but consumers lose. The country asa whole loses, because of tariffs, decrease the volume of trade and therefore decrease the gains from trade.

    Quota section: There is an excess demand for shrimp, which drives up the price.

    The price will keep rising until the gap between the supply and demand curves shrinks to the quantity allowed under the quota.

    A qoata has effects similar to a tariff: It reduces importa=s ad raises the domestic price, thereby helping

    domestic producers of the good but reducing gaineds from trade to the country as a howl.

    Tarrifs is the better choice.

    because there is tax revenue. And they have the same effects. One there is tax revenue, another there is not.

    What is protectionism?

    The belief that a nation's industries should be protected from foreign competition.

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