International Trade (Chapter 6)

the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services

it occurs when one country can produce a good or service at a lower opportunity cost (in terms of other goods and services) than another country

the fundamental principle behind gains from trade

– countries that specialize in certain industry can become centers of innovation and expertise in those areas

• this can stimulate technological progress and economic growth

• Trade can foster peaceful relations between countries by creating

known as bilateral trade or intra industry trade

refers to the exchange of goods and services between two countries or entities

• eliminates trade barriers, such as tariffs, import quotas, and export restraints in order to encourage trade and investment

are typically undertaken in an effort to protect companies and workers in the home economy from competition by foreign firms

is in which a country restricts the importation of goods and services produced in foreign countries

– tax of imported goods and services

most common protectionist measures now

• a domestic firm, faced with competition by foreign competitors, files charges with its government that the foreign firm is dumping or charging an “UNFAIR” price

defined as a price below production cost or below the price the foreign firm charges for the same good in its own country

– a direct restriction on the total quantity of a good or service that may be imported during a specified period

restricts total supply and therefore increase the domestic price of the good or service on which they are imposed

are a form of trade barrier by which foreign firms agree to limit the quantity of goods exported to a particular country

a new domestic industry with potential economies of scale

suggests that by offering protection during the industry’s formative years, a tariff or quota may allow the new industry to develop and prosper

played a major role in tariff policy in the early years of US development

any policy that aimed at promoting the development of key industries that may increase a countries domestic well-being through trade with the rest of the world

an alternative to tariff protection of strategic commodities is to stockpile the commodities for use in times of crisis

the desire to maintain the existing jobs threatened by foreign competition is probably the single most important source of today’s protectionist policies

– if the foreign countries can produce goods at lower cost than they can, it is in their collective interest to obtain it form them but workers counter by saying that the low wages of foreign workers means that foreign workers are exploited

in which firms in a developed country transfer some their activities abroad in order to take advantage of lower labor costs in other countries

this practice tends to reduce costs for the firm that do it