Economics Ch. 12

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Economics Ch. 12
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2011-03-29 23:55:08
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Economics Vocab
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Economics Ch. 12 Vocab
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  1. Free Trade
    absence of gvmt intervention in international trade
  2. Protectionism
    • gvmt intervention in international trade through imposition of trade restrictions
    • 1. Protect jobs, industries, citizens
    • 2. Encourage new industries
    • 5. National Security
  3. Tariffs (customs duties)
    • taxes on imported goods
    • 1. to protect domestic industry from foreign competition (protective tariff)
    • 2. to raise revenue for the gvmt (revenue tariff)
  4. Import Quotas
    legal limits to the quantity of a good that can be imported over a particular time period
  5. Voluntary Export Restraints (VERs)
    called voluntary, but are imposed by importing countries via threats.
  6. Why do countries trade?
    • 1. Specialization - focus on a few goods/services
    • 2. Economy of Scale - decrease cost of production by increasing quantity of output and firm size
    • 3. Acquire needed resources - from other countries
    • 4. Increased competition = increased efficiency
    • 5. Flow of new ideas and technology
    • 6. Decrease in hostility and violence
    • 7. Greater efficiency - leads to more economic growth
    • 8. Increase in exports > more economic development
  7. Good points of Tariffs
    • 1. Employment increases
    • 2. Government has more revenue
  8. Bad Points of Tariffs
    • 1 Income distribution worsens (Regressive Tax)
    • 2. Domestic society is worse off
    • - consumers worse off
    • - increase production by relatively inefficient producers
    • 3. Exporting countries worse off
    • 4. Global misallocation of resources
    • 5. Tariff Wars
    • Impacts of Import Quotas
    • 1. Domestic consumers are worse off
    • 2. Domestic producers are better off
    • 3. Domestic employment increases
    • 4. Importers/gvmt gain quota revenue
    • 5. Domestic income distribution worsens
    • 6. Domestic society is worse off
    • 7. Exporting country is worse off
    • 8. Global misallocation of resources
  9. Subsidy
    a payment for each unit of output produced made to a firm by the government
  10. Production Subsidy
    • - are payments per unit of output granted by the gvmt to domestic firms that compete with imports
    • - intended to protect domestic firms that compete with imports
    • Impacts
    • 1. Consumption of good is not affected
    • 2. Taxpayers are worse off
    • 3. Domestic producers are better off
    • 4. Domestic employment increases
    • 5. The domestic society as a whole is worse off
    • 6. The exporting countries are worse off
    • 7. Global misallocation of resources
  11. Export Subsidy
    • - intended to protect domestic firms that export
    • Impacts
    • 1. Consumers are worse off
    • 2. Taxpayers are worse off
    • 3. Producers are better off
    • 4. Domestic employment increases
    • 5. Domestic income distribution worsens
    • 6. Domestic society is worse off
    • 7. Exporting countries are worse off
    • 8. Increase in the global misallocation of resources
    • Subsidies for Production cause the Supply line to increase
    • Good
    • 1. Quantity produced by country will increase
    • 2. Domestic producers are better off
    • 3. Employment increases

    • Bad
    • 1. Taxpayers are worse off
    • 2. Domestic society is worse off
    • 3. Consumers are worse off
    • 4. Exporting countries are worse off
    • 5. Results in a global misallocation of resources
    • 6. Income distribution worsens

    * Consumption of the good is NOT affected
  12. Administrative and technical regulations can also limit the imports by imposing obstacles
    • 1. Inspections
    • 2. Setting Requirements
    • 3. Health, Safety, and Environmental Standards
  13. VERs impact
    • IMPORTING COUNTRY
    • 1. producers benefit
    • 2. domestic employment increases
    • 3. consumers are worse off (higher price, smaller quantity)
    • 4. gvmt/importers do not recieve revenue
    • 5. domestic income distribution worsens
    • 6. society is worse off due to inefficiency

    • EXPORTING COUNTRY
    • 1. producers are worse off
    • 2. exporters gain
    • 3. global misallocation of resources
  14. Infant Industry
    a new domestic industry that has not had time to establish itself and achieve efficiencies in production
  15. Diversification
    change involving greater variety; economic diversification refers to increasing the variety of goods and services produced (opposite of specialization)
  16. Dumping
    the practice of selling a good in international markets at a price that is below the cost of producing it (unfair trade practice)
  17. Common Market
    • - countries eliminate any remaining tariffs
    • - has all of the characteristics of the Custom Union
    • - agree to eliminate all restriction on movements of any factors of production within them
    • - ex EEC & CARICOM
  18. Monetary Union
    • - When the member countries adopt a common currency
    • - economic integration
  19. Trading Bloc
    a group of countries that have agreed to reduce tariff and other barriers to trade for the purpose of encouraging the development of free or freer trade and cooperation between them.
  20. Free Trade Area
    a group of countries tat agree to gradually eliminate trade barriers between themselves
  21. Customs Union
    • - countries eliminate trade barriers between members
    • - countries no longer are free to determine their own trade policy - common external policy towards trade
    • - countries act as a group in all trade negotiations
    • - ex. CEFTA, SACU, PARTA
  22. Arguments Against Protectionism / For Free Trade
    • 1. Increases ineffiency
    • 2. Consumers almost always lose - pay higher prices
    • 3. the loss to consumers is almost always greater than the gains recieved by producers
    • 4. Income distribution almost always worsens
    • 5. Foreign producers are worse off
    • 6. Misallocation of resources increases
    • 7. Negative impact on a country's ability to compete internationally
    • 8. May give rise to trade wars
  23. Arguments for Protectionism / Against Free Trade
    • 1. Protecting an infant industry - helping it get established
    • 2. Strategic trade policy - protect industries that are essential to future growth
    • 3. Help your country diversify
    • 4. Some industries are essential for national defense
    • 5. Tariffs bring in gvmt revenue *
    • 6. Helps overcome balance of payment deficit by limiting imports*
    • 7. It's an anti-dumping measure (dumping is selling a good at a price that's lower than the cost of production)*
    • 8. Protect domestic production*
  24. Advantage of Trading Blocs
    • 1. Increased competition
    • 2. Economies of Scale
    • 3. Use of new technologies
    • 4. Lower prices for consumers
    • 5 Increased investment
    • 6. Better use of factors of production
    • 7 Improved efficiency in production/allocative efficiency
    • 8. Political advantages arising from increase economic integration
  25. Disadvantages of trading blocs
    • 1. may be 2nd best solutions to eliminate all trade barriers
    • 2. may create obstacles to the achievement of free trade on a global scale
    • 3. unequal distribution of gains from trading blocs
    • 4. gains from a trading bloc may be limited if maajor trade links are with countries outside the bloc
  26. Globalization
    • - Affects Trade, Finance, Investment, People, Technology, Ideas, Knowledge, Communication, Culture
    • - Arguments for : increases growth and prosperity for all
    • - Arguments against: exploits workers in poor countries, increases unemployment in developed countries, causes environmental destruction
  27. Most economists agree...
    • - globalization has contributed to economic growth
    • - has not resulted in a more equal distribution of income and benefits

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