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Questions and Answers
What is a voluntary export restraint (VER)?
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.
Dumping is a practice of selling goods at higher prices than their domestic or production costs.
False (B)
What is the purpose of protecting infant industries through protectionism?
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 ______________________.
Embargoes are a type of trade barrier that involves a complete ban or prohibition on trade, usually imposed by a ______________________.
What is an argument in favor of protectionism?
What is an argument in favor of protectionism?
Match the following trade barriers with their definitions:
Match the following trade barriers with their definitions:
Protectionism can be justified on grounds of national security.
Protectionism can be justified on grounds of national security.
What is the purpose of protectionism in terms of protecting national security?
What is the purpose of protectionism in terms of protecting national security?
What is a characteristic of a monopolistic competition market structure?
What is a characteristic of a monopolistic competition market structure?
A cartel is a single firm that sets prices and limits output.
A cartel is a single firm that sets prices and limits output.
What is a barrier to entry?
What is a barrier to entry?
In a _______________ market structure, there is only one seller and many buyers.
In a _______________ market structure, there is only one seller and many buyers.
Match the following market structures with their characteristics:
Match the following market structures with their characteristics:
What is a result of specialization in international trade?
What is a result of specialization in international trade?
In a perfectly competitive market, firms have some degree of price-making power.
In a perfectly competitive market, firms have some degree of price-making power.
What is an advantage of free trade?
What is an advantage of free trade?
What is economic interdependence?
What is economic interdependence?
A trade surplus occurs when exports are less than imports.
A trade surplus occurs when exports are less than imports.
What is the law of comparative advantage?
What is the law of comparative advantage?
A _______________ is a trade barrier that limits the quantity or value of goods that can be imported or exported.
A _______________ is a trade barrier that limits the quantity or value of goods that can be imported or exported.
What is an absolute advantage?
What is an absolute advantage?
Free trade leads to lower prices and higher employment.
Free trade leads to lower prices and higher employment.
Match the following trade barriers with their definitions:
Match the following trade barriers with their definitions:
What are the advantages of free trade?
What are the advantages of free trade?
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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.
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