International Trade and Economic Interdependence

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a voluntary export restraint (VER)?

A type of embargo

A trade barrier where the exporting country voluntarily agrees to limit the quantity or value of its exports (correct)

A trade barrier imposed by the importing country

A type of tariff

Dumping is a practice of selling goods at higher prices than their domestic or production costs.

False

What is the purpose of protecting infant industries through protectionism?

To allow them to develop and grow domestically before facing international competition.

Embargoes are a type of trade barrier that involves a complete ban or prohibition on trade, usually imposed by a ______________________.

government Signup and view all the answers

What is an argument in favor of protectionism?

Protecting domestic jobs Signup and view all the answers

Match the following trade barriers with their definitions:

Voluntary export restraint (VER) = A trade barrier where the exporting country voluntarily agrees to limit the quantity or value of its exports Embargoes = A complete ban or prohibition on trade, usually imposed by a government Informal trade barriers = Non-tariff barriers to trade that are not explicitly imposed by governments Signup and view all the answers

Protectionism can be justified on grounds of national security.

True Signup and view all the answers

What is the purpose of protectionism in terms of protecting national security?

To ensure self-reliance and protect against potential vulnerabilities. Signup and view all the answers

What is a characteristic of a monopolistic competition market structure?

Many sellers and many buyers Signup and view all the answers

A cartel is a single firm that sets prices and limits output.

False Signup and view all the answers

What is a barrier to entry?

A barrier to entry is a factor that makes it difficult for new businesses to enter a market. Signup and view all the answers

In a _______________ market structure, there is only one seller and many buyers.

monopoly Signup and view all the answers

Match the following market structures with their characteristics:

Monopolistic Competition = Many sellers and many buyers Oligopoly = Few sellers and many buyers Monopoly = One seller and many buyers Signup and view all the answers

What is a result of specialization in international trade?

Economic interdependence Signup and view all the answers

In a perfectly competitive market, firms have some degree of price-making power.

False Signup and view all the answers

What is an advantage of free trade?

Increased economic efficiency and higher productivity. Signup and view all the answers

What is economic interdependence?

A situation where producers in one nation depend on others to provide goods and services they do not produce Signup and view all the answers

A trade surplus occurs when exports are less than imports.

False Signup and view all the answers

What is the law of comparative advantage?

The law of comparative advantage states that countries gain when they produce items they are most efficient at producing and are at the lowest opportunity cost. Signup and view all the answers

A _______________ is a trade barrier that limits the quantity or value of goods that can be imported or exported.

quota Signup and view all the answers

What is an absolute advantage?

The ability of one trading nation to make a product more efficiently than another trading nation Signup and view all the answers

Free trade leads to lower prices and higher employment.

True Signup and view all the answers

Match the following trade barriers with their definitions:

Tariff = A tax or duty imposed on imported or exported goods, making them more expensive and less competitive in the domestic market. Quota = A trade barrier that limits the quantity or value of goods that can be imported or exported, usually imposed by a government. Signup and view all the answers

What are the advantages of free trade?

The advantages of free trade include lower prices, higher employment, and increased production. Signup and view all the answers

Study Notes

Economic Interdependence and Trade

Economic Interdependence is a situation in which producers in one nation depend on others to provide goods and services they do not produce.
Exports: goods and services produced in one country, sold in others.
Imports: products produced in one country, purchased by another.

Trade Balance

Trade Balance: when exports = imports (balanced), when exports > imports (trade surplus/imbalance), when exports < imports (trade deficit/imbalance).

Absolute and Comparative Advantage

Absolute Advantage: a trading nation can make a product more efficiently than another trading nation.
Comparative Advantage: a trading nation's ability to produce something at a lower opportunity cost than another trading nation.
Law of Comparative Advantage: countries gain when they produce items they are most efficient at producing and are at the lowest opportunity cost.

Trade Barriers

Trade Barriers: any law that limits free trade between nations.
Types of Trade Barriers:
- Quota: limits the quantity or value of goods that can be imported or exported.
- Tariff: a tax or duty imposed on imported or exported goods.
- Voluntary Export Restraint (VER): a trade barrier where the exporting country voluntarily agrees to limit the quantity or value of its exports.
- Embargoes: a complete ban or prohibition on trade, usually imposed by a government.
- Informal Trade Barriers: non-tariff barriers to trade that hinder trade, such as complex regulations or discriminatory practices.

Arguments for and against Protectionism

Arguments for Protectionism:
- Protecting domestic jobs.
- Protecting infant industries.
- Protecting national security.
Arguments against Protectionism:
- Reduces trade and economic growth.
- Leads to higher prices and limited choices for consumers.

Market Structures

Monopolistic Competition:
- Many sellers and many buyers.
- Sellers act independently in choosing what kind of product to produce, how much to produce, and what price to charge.
- Similar but differentiated products.
- Limited control of prices.
- Freedom of entry and exit.
Oligopoly:
- Few sellers but many buyers.
- Sellers have more power to control prices.
- Difficult to enter or exit the market.