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Questions and Answers
Which product should Country A specialize in based on its comparative advantage?
Which product should Country A specialize in based on its comparative advantage?
What is the primary benefit of international trade for countries?
What is the primary benefit of international trade for countries?
What is a likely outcome of imposing a tariff on imported goods?
What is a likely outcome of imposing a tariff on imported goods?
How does an import quota differ from a tariff?
How does an import quota differ from a tariff?
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What happens to consumer surplus when a country transitions from no trade to free trade?
What happens to consumer surplus when a country transitions from no trade to free trade?
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What is the effect of free trade on domestic producers of a good that is imported?
What is the effect of free trade on domestic producers of a good that is imported?
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If the world price of a good is lower than the domestic price, what is likely to happen once trade is allowed?
If the world price of a good is lower than the domestic price, what is likely to happen once trade is allowed?
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Why is free trade regarded as economically efficient?
Why is free trade regarded as economically efficient?
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What is a disadvantage of having tariffs on imports?
What is a disadvantage of having tariffs on imports?
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What might be a long-term effect of sustained import quotas on domestic markets?
What might be a long-term effect of sustained import quotas on domestic markets?
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Study Notes
Comparative Advantage in Trade
- Country A should specialize in computers because it has a lower opportunity cost for producing them compared to cars.
Benefits of Trade
- The primary benefit of international trade is that it enables countries to consume beyond their production possibilities.
Effects of Tariffs on Imports
- Imposing tariffs on imported goods leads to a reduced quantity of imports.
Import Quotas
- Import quotas differ from tariffs because they restrict the quantity of imports rather than raising their price.
Consumer Surplus in Free Trade
- Consumer surplus increases when a country transitions from no trade to free trade in an imported good.
Impact of Trade on Domestic Producers
- Domestic producers of a good that is imported when a country allows free trade experience a reduction in producer surplus.
World Price vs. Domestic Price
- If the world price of a good is lower than the domestic price before trade, the country will import the good once trade is allowed.
Economic Efficiency in Trade
- Free trade is considered economically efficient because it increases total surplus. This is achieved by maximizing the benefits for both consumers and producers through greater specialization and resource allocation.
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Description
This quiz explores key concepts in international trade, including comparative advantage, benefits of trade, and the effects of tariffs and quotas. Test your understanding of how trade impacts consumer surplus and domestic producers.
