International Economics Quiz

Study Notes

International Economics: Trade Theory and Trade Policies

International economics studies the impact of international differences in productive resources and consumer preferences, and the international institutions that affect them.
The economic theory of international trade is different from the rest of economic theory because of the limited international mobility of capital and labour. The methodology of international trade economics is similar to that of the rest of economics.
The direction of academic research has been influenced by the fact that governments have often imposed restrictions on international trade. The motive for the development of trade theory has often been a wish to determine the consequences of such restrictions.
The theory of comparative advantage provides a logical explanation of international trade as the rational consequence of the comparative advantages that arise from inter-regional differences. The Heckscher-Ohlin theorem (H-O) depends upon the assumptions of no international differences of technology, productivity, or consumer preferences.
Modern trade analysis moves away from the restrictive assumptions of the H-O theorem and explores the effects upon trade of a range of factors, including technology and scale economies.
Economists have found that trade confers very substantial net benefits, and that government restrictions upon trade are generally damaging.
Samuelson's factor price equalisation theorem indicates that, if productivity were the same in both countries, the effect of trade would be to bring about equality in wage rates.
Influential studies suggest that there is a tendency for the prices of agricultural products to fall relative to the prices of manufactured goods; turning the terms of trade against the developing countries and producing an unintended transfer of wealth from them to the developed countries.
The term "infant industry" is used to denote a new industry which has prospects of gaining comparative advantage in the long-term, but which would be unable to survive in the face of competition from imported goods. Successful identification of such a situation, followed by the temporary imposition of a barrier against imports can, in principle, produce substantial benefits to the country that applies it.
Economists’ findings about the benefits of trade have often been rejected by government policy-makers, who have frequently sought to protect domestic industries against foreign competition by erecting barriers, such as tariffs and import quotas, against imports.
The practice of international finance tends to involve greater uncertainties and risks because the assets that are traded are claims to flows of returns that often extend many years into the future. There is a much greater danger that a transaction will be harmful to others.
A major change in the organisation of international finance occurred in the latter years of the twentieth century, and economists are still debating its implications.Economic Issues in International Trade: A Summary
In 1971, the US government suspended the convertibility of the dollar, leading to a transition to the current regime of floating exchange rates, which increased exchange rate volatility and financial crises.
The empirical analysis found little evidence of the benefits of the liberalization of capital movements or the claims that it is responsible for the spate of financial crises.
The IMF offers loans to member countries to overcome balance of payments problems, conditional upon the introduction of economic measures that are considered by the Fund's economists to provide conditions favorable to recovery.
International migration results in a net gain in economic welfare, and the movement of skilled workers from a place where the returns to skill are relatively low to a place where they are relatively high should produce a net gain.
Globalization refers to the move toward complete mobility of capital and labor and their products, reducing politically imposed barriers and costs of transport and communication. It is estimated to have resulted in net welfare gains worldwide, but with losers as well as gainers.
Globalization has made it easier for recessions to spread from country to country and can have a significant influence on the conduct of macroeconomic policy.
Opposition to globalization has been expressed by some economists who argue that it has led to income inequalities and to damaging losses of social capital in parent countries and social stresses resulting from immigration in receiving countries.

Description

Test your knowledge on International Economics, Trade Theory, and Trade Policies with this quiz. Explore the impact of international differences in productive resources, the economic theory of international trade, and the international institutions affecting them. Discover the theory of comparative advantage, modern trade analysis, and the net benefits of trade. Learn about Samuelson's factor price equalisation theorem and the concept of infant industries. Evaluate the benefits of globalization, international migration, and the risks involved in international finance. This quiz is perfect for anyone interested