Term
| When does a domestic industry have a comparative advantage |
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Definition
| When the domestic price is below the world price |
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Term
| If a domestic industry has a comparative advantage then.... |
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Definition
| the domestic industry exports to the world |
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Term
| Exports enhance the welfare of the domestic country because: |
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Definition
| Producer surplus increases more than consumer surplus decreases |
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Term
| When do foreign producers have a comparative advantage? |
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Definition
| when the world price is below the domestic price |
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Term
| Imports enhance the welfare of the domestic country because: |
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Definition
| consumer surplus increases more than producer surplus decreases |
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Term
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Definition
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Term
| A tariff directly affects... |
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Definition
| the domestic price charged on imports |
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Term
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Definition
- Higher domestic prices
- Under-consumpution in the domestic market
- Over-production by domestic producers
- Less imports to the domestic market |
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Term
| Tariffs cause two kinds of inefficiencies |
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Definition
- Under-consumption
- Over Production |
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Term
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Definition
| a maximum quantity placed on imports |
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Term
| The quota indirectly affects the domestic price by... |
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Definition
| creating a situation of excess demand |
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Term
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Definition
-Less imports to the domestic market
-Under-consumption in the domestic market
- Over-production by domestic producers
- Higher Domestic prices |
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Term
| Differences between Tariffs and Quota |
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Definition
| one difference is that tariffs raise revenue while quotas do not. |
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Term
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Definition
| When combined with quotas can raise revenue |
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Term
| How quotas result in more inefficiencies |
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Definition
- if the license fee does not take away the price premium in the domestic market (Pq-Pw), foreign producers will have an incentive to lobby to get into the domestic market (to sell at the higher price)
- Resources spent on lobbying will lead to the increased inefficiency |
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Term
| Why do nations adopt trade restrictions (4) |
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Definition
-National Defense Reasons
-Retaliation against dumping (sale of goods at prices lower than production costs in foreign markets
- Infant industry argument (new domestic industries need to be protected)
- Special interests influences (businesses try to gain market power over competitors, and business try to save jobs and stop creative destruction) |
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Term
| Imports and Exports are linked through income creation |
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Definition
- restrict imports and exports will also fall
- jobs will be lost in the exporting industries |
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Term
| Import restriction raise prices on inputs |
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Definition
| - Jobs will be lost in industries that rely on cheap imported materials |
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Term
| Jobs increase in the domestic industry that has trade restrictions |
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Definition
| - but this has more workers working in inefficient industries |
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