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Questions and Answers
What does the MRT represent in terms of wheat and car production?
What does the MRT represent in terms of wheat and car production?
In country A, what is the relative cost of producing one car?
In country A, what is the relative cost of producing one car?
What assumption does the analysis of comparative advantage rely on?
What assumption does the analysis of comparative advantage rely on?
What characterizes the production possibilities frontier (PPF) of countries A and B under constant cost conditions?
What characterizes the production possibilities frontier (PPF) of countries A and B under constant cost conditions?
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Why do constant costs occur in the context of production?
Why do constant costs occur in the context of production?
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What does point C represent for country A in the context of trade?
What does point C represent for country A in the context of trade?
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At which point does country A prefer to produce and consume in autarky?
At which point does country A prefer to produce and consume in autarky?
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Which statement correctly describes the Trade Triangle?
Which statement correctly describes the Trade Triangle?
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What is the potential gain from trade for a nation?
What is the potential gain from trade for a nation?
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At what terms of trade ratio did country A trade with country B?
At what terms of trade ratio did country A trade with country B?
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What is the relative cost of cars for country B?
What is the relative cost of cars for country B?
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What is implied by complete specialization in the trading example?
What is implied by complete specialization in the trading example?
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What is the consumption gain for country A compared to point A after trade?
What is the consumption gain for country A compared to point A after trade?
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How do the trade triangles for countries A and B relate to each other?
How do the trade triangles for countries A and B relate to each other?
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What is a consequence of the constant production costs in the trading scenario?
What is a consequence of the constant production costs in the trading scenario?
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What aspect is crucial in determining where terms of trade will lie?
What aspect is crucial in determining where terms of trade will lie?
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What determines the outer limits of the terms of trade between two countries?
What determines the outer limits of the terms of trade between two countries?
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According to Mill's theory of reciprocal demand, what primarily influences the actual terms of trade?
According to Mill's theory of reciprocal demand, what primarily influences the actual terms of trade?
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If Country B's consumers prefer Country A's cars significantly more than Country A's consumers prefer Country B's wheat, what would likely happen to the terms of trade?
If Country B's consumers prefer Country A's cars significantly more than Country A's consumers prefer Country B's wheat, what would likely happen to the terms of trade?
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In the context of international trade, the term 'terms of trade' refers to what?
In the context of international trade, the term 'terms of trade' refers to what?
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What could cause the terms of trade to improve for Country A?
What could cause the terms of trade to improve for Country A?
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What happens to the terms of trade if Country A's citizens prefer Country B's wheat over Country A's cars?
What happens to the terms of trade if Country A's citizens prefer Country B's wheat over Country A's cars?
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What major gap in trade theory did John Stuart Mill aim to address?
What major gap in trade theory did John Stuart Mill aim to address?
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According to the passage, the 'ratio' mentioned for Country A and Country B refers to what aspect of trade?
According to the passage, the 'ratio' mentioned for Country A and Country B refers to what aspect of trade?
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What does the slope of line tA represent for Country A?
What does the slope of line tA represent for Country A?
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Which country specializes in the production of cars according to the principle of comparative advantage?
Which country specializes in the production of cars according to the principle of comparative advantage?
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Which statement is true regarding the relative costs of wheat in Country A and Country B?
Which statement is true regarding the relative costs of wheat in Country A and Country B?
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As Country A specializes in car production, what happens to the relative cost of cars?
As Country A specializes in car production, what happens to the relative cost of cars?
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What signifies the point where the production gains from specialization are maximized?
What signifies the point where the production gains from specialization are maximized?
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Which line represents the international terms-of-trade line for both countries?
Which line represents the international terms-of-trade line for both countries?
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What happens to the production possibility schedule of Country B as it specializes in wheat?
What happens to the production possibility schedule of Country B as it specializes in wheat?
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What does the steeper nature of line tt imply about the international terms of trade?
What does the steeper nature of line tt imply about the international terms of trade?
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What primarily differentiates the production conditions between the two nations discussed?
What primarily differentiates the production conditions between the two nations discussed?
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What does the offer curve of a nation help to determine?
What does the offer curve of a nation help to determine?
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In the context of the production possibilities curves, which of the following best represents Country A's production capabilities?
In the context of the production possibilities curves, which of the following best represents Country A's production capabilities?
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When does the reciprocal-demand theory apply most effectively?
When does the reciprocal-demand theory apply most effectively?
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Which variable is NOT considered in the differences between the two nations?
Which variable is NOT considered in the differences between the two nations?
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What happens to gains from trade when one nation is significantly larger than the other?
What happens to gains from trade when one nation is significantly larger than the other?
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What does point E on the curve likely represent in the production possibilities scenario?
What does point E on the curve likely represent in the production possibilities scenario?
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What do the domestic cost ratios establish in international trade?
What do the domestic cost ratios establish in international trade?
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Which of the following best describes the relationship between the production capabilities and preferences in the two nations?
Which of the following best describes the relationship between the production capabilities and preferences in the two nations?
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Which term is used to describe the relationship between the prices a nation gets for its exports and the prices it pays for its imports?
Which term is used to describe the relationship between the prices a nation gets for its exports and the prices it pays for its imports?
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The concept of 'production possibilities curves' is primarily used to illustrate what?
The concept of 'production possibilities curves' is primarily used to illustrate what?
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What impact do differences in production capabilities have on international trade?
What impact do differences in production capabilities have on international trade?
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What characterizes a situation where a smaller nation participates in trade with a larger nation?
What characterizes a situation where a smaller nation participates in trade with a larger nation?
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What is the implication of mutual trade when both nations share similar taste patterns?
What is the implication of mutual trade when both nations share similar taste patterns?
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What commonly occurs if there are no monopoly elements affecting market conditions?
What commonly occurs if there are no monopoly elements affecting market conditions?
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What is described as 'the importance of being unimportant' in the context of international trade?
What is described as 'the importance of being unimportant' in the context of international trade?
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Study Notes
Course Module: International Trade
- Course code: ECF330/BF310
- University: University of Lusaka
- Faculty: Faculty of Economics, Business & Management
- Program: Undergraduate
Unit 1: International Trade Theory
- Mercantilism: Focus on accumulating gold and silver through trade surpluses.
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Classical Theory of Trade:
- Principle of Absolute Advantage: A nation benefits from specializing in producing goods where it has an absolute advantage (can produce at a lower cost).
- Principle of Comparative Advantage: A nation benefits from specializing in producing goods where it has a comparative advantage (lowest opportunity cost).
- Modern Trade Theory - Generalized Theory of Comparative Advantage: Explains trade based on differences in production costs (resource efficiency).
- Production Possibility Schedules: Illustrate a nation's possible combinations of goods it can produce.
- Trading Under Constant Cost Conditions: Trade based on absolute or comparative advantage where opportunity costs are constant.
- The Basis For Trade and Its Direction of Trade: Factors determining patterns of traded goods.
- Production Gains From Specialization: Increased output by specializing in production of specific goods.
- Consumption Gains From Trade: Increased variety of goods and services available for consumption through international trade.
- Equilibrium Terms of Trade: The exchange rate at which goods are traded.
- Terms-of-Trade Estimates: Methods for measuring and estimating terms of trade.
- Trading Under Increasing Cost Conditions: Trade based on principles where opportunity costs increase with increasing production.
- Indifference Curves And Trade: How tastes and preferences influence a nation's preferred consumption possibilities.
- Community Indifference Curves: Combination of indifference curves to represent entire nation's collective preferences for various commodities.
- Offer Curve Of One Nation: Illustrates the relationship between exports and imports of a nation.
- The Terms Of Trade Of A Nation: Details of the balance of trade and equilibrium prices of a nation.
Unit 2: The Heckscher-Ohlin Theory
- Factor-Price Equalization: International trade tends to equalize factor prices across countries.
- Stolper-Samuelson Theorem: A change in the price of a commodity affects the relative returns to the factors used in producing that commodity.
- Empirical Evidence on the Heckscher-Ohlin Model : Findings and examinations of the role of factor endowments and production costs in trade patterns.
- Leontief Paradox: A common finding against the Heckscher -Ohlin model that trade patterns did not align with predicted factor endowments in nations.
Unit 3: Extensions to ft the Heckscher-Ohlin Theory
- Increasing Returns to Scale or the Economies of Scale Trade Theory: Explains how gains from trade can arise even when nations have similar factor endowments.
- The Product Life Cycle Theory Of Trade: Explains how the pattern of trade can change over time as a nation develops or as products mature.
- Dynamic Comparative Advantage: Explains how comparative advantage can change over time due to technological improvements or factors like industrial policy.
- Transportation Costs and Comparative Advantage: Transport costs can lead to differing comparative advantages when nations are located in different parts of the world.
- The Theory of Overlapping Demand As A Basis For Trade: Expands on comparative advantage and considers factor endowments.
- Intra Industry Trade: Focuses on trade between countries in similar products.
Unit 4: The Theory of Commercial Policy
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Barriers to Free Trade- Tariffs: Taxes levied on imported products.
-
Types Of Tariffs:
- Specific Tariffs: Fixed amount per unit.
- Ad valorem Tariffs: Percentage of the value.
- Compound Tariffs: Both specific and ad valorem tariffs combined.
-
Types Of Tariffs:
- Tariff Welfare Effects: The effects of tariffs on consumers, producers and overall welfare .
- Tariff Escalation: Tariffs increase with the stages of processing in production.
- Tariff Welfare Effects: Small-Nation Model; and Tariff Welfare Effects: Large-Nation Model: Examining tariff effects on welfare in small and large nations.
- Import Quotas: Limiting the quantity of goods permitted to enter a country.
- Orderly Marketing Agreements (OMAs): Agreements between importing and exporting countries to restrict trade volumes for a specific product.
- Domestic Content Requirements: Stipulations on the percentage of a product that must be produced domestically to qualify for zero tariffs.
-
Subsidies: Financial support given to domestic producers.
- Domestic Subsidies: Granted to producers of import competing goods.
- Export Subsidies: Given to the producers of domestically produced goods meant for export.
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Dumping: Selling goods or services below market value.
- Sporadic Dumping: Short-term, temporary, sale of goods or services below market value.
- Predatory Dumping: Intentional sale of goods or services below value to drive competitors out of business.
- Persistent Dumping: Recurring sale of goods or services below market value.
Unit 5: Non -Tariff Barriers to Trade
- Import Quotas: Limiting the quantity of goods imported during a given period.
- Tariff-Rate Quotas: A two-tiered tariff.
- Other NTBs (non-tariff barriers): Government procurement policies, social regulations, and other restrictions.
Unit 6: Other Non-Tariff Barriers and Arguments for Trade Barriers
- Social Regulations: Government rules that affect firms' production processes, like environmental standards.
- Administrative Policies: Procedures and regulations that make it difficult or costly to import and export goods.
- Government Procurement Policies: Preferences for domestic suppliers over foreign ones in the government purchases.
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Arguments for Trade Restrictions:
- National Security: Security concerns that dictate an increase in local production.
- Infant Industry Argument: Providing protection to newly formed domestic industries to allow them to grow stronger eventually before exposing them to foreign competition.
Unit 7: Economic Integration
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Regional Trading Arrangements: Agreements between countries to reduce trade barriers.
- Free-Trade Area: Members eliminate tariffs between themselves but keep their own tariffs against non-members.
- Customs Union: Includes the features of a free trade are but adds a common external tariff on non-members.
- Common Market: Incorporates the features of customs union but extends to factors of production.
- Economic Union: A highly unified system which extends to economic and fiscal policies.
- Benefits of Regionalism: Economic growth, increase in investment, and development in countries.
- Constraints to Regional Integration: Varying economic strengths between countries, lack of political relations amongst countries.
Unit 8: Growth and International Trade
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Dynamic Factors in International Trade: Growth in factors of production and changes in technology will impact trade.
- K-Saving Technical Progress: Labour productivity grows faster than capital productivity.
- L-Saving Technical Progress: Capital productivity grows faster than labour productivity.
- Neutral Technical Progress: Labour and capital productivity increase proportionally.
- Changes in Factor Supplies and Technology and Trade: How growth in factors or technology shapes the terms of trade and the volume of trade and the distribution of gains from trade.
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