ECON 270- TRADE FINAL STUDY GRUIDE
ECON 270- TRADE FINAL STUDY GRUIDE ECON 270
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This 4 page Study Guide was uploaded by Hewan Ft on Sunday October 16, 2016. The Study Guide belongs to ECON 270 at James Madison University taught by Bob Horn in Fall 2016. Since its upload, it has received 4 views. For similar materials see International economics in Economics at James Madison University.
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Date Created: 10/16/16
Econ 270 study guide Chapt 3 Important terms 1. GDP Gross domestic product 2. Trade index – index of opennessThis states how much we trade AKA what proportion of trade makes up our GDP 3. Constant opportunity cost when the PPC is a straight line and it is an equal trade off for two items. 4. Autarky When a country is not open to trade and produces and consumes domestic products 5. The trade Upper bound and lower bounce the range in which both would benefit is going to be between each country's individual costs of productions. 6. Why do some countries restrict imports from some goods knowing the benefits of the Ricardian model? Trade can have significantly harmful effects on some segments of a country’s economy 7. International Trade theory states that voluntary trade is almost always mutually beneficial. True/False? True 8. Opportunity cost the cost of what you give up for a certain gain. Chapt 4 Important terms 1. Factors of production natural resources, skilled & unskilled, capital 2. HO model (Heckscherohlin trade model) A country will produce and export products in whichever resource they have the abundance in. 3. Relative scarcity implies that in autarky scarce factors are more expensive inside a country. 4. When capital ratio is greater the country is capital abundant 5. Terms of trade the rate at two countries who trade are both benefiting 6. Terms of trade triangle the point where the a countries ppc touches the the terms of trade line Vs how much the country consumes giving us how much they would need to import to meet consumption demand. 7. Derived demand the demand for an input depends on the demand for the output that the input is producing. 8. Stolper Samuelson theorem As we move along the curve towards our comparative advantage the demands for the input of the opposite good go down.Therefore, the increase in price of a good also increases the income of the factor that produces it. 9. Magnification Effect The change in the output price has an even more magnified effect on the factor input price. 10. Factor Price Equalization as a wages for workers in one country’s the less abundant factor goes down, the wages in the country which does have an abundance in that sector will go up and the wages will converge. (ex. Is low skilled workers wages in US and Mexico) 11. Specific Factors Model in this model when a good is produced with a specific factor, the factor is only used only in the production of that good. They are immobile 12. Variable Factor model variable factor model can be used to produce more than one good, are mobile between industries. 13. The Leontief Paradox If we rank by K/L = capital labour ratio 14. Supply push factors the factor inside a country that causes people inside to want to leave 15. Demand Pull FactorsForces that pull migrants to want to come to a country. 16. What is the impact of trade on employment in US It does not have an impact of the # of jobs in the USA but it changes the distribution of jobs in the US 17. What lead to the decline in the manufacturing industry in the USTechnology and innovation which shifted the US job demands 18. Since WW2 the relative importance of raw materials in world trade has decrease. True/False? = True 19. Offshoring movement of some or all of a firm's activities to a different country than the origin. 20. outsourcing the reassignment of activities to another firm either inside or outside the country. 21. When we invest abroad instead of exporting goods, we are choosing foreign investment over foreign trade. True/False True. Chapter 5: Trade and Geography 1 New Trade Theory: No longer measuring constant returns or decreasing returns of scale but rather on economies of scale or decreasing costs of production, over a relatively large range of outputs. 2Internal Economies of scale:. When production increases, the costs of the producer go down per unit. Leads to larger firms because size allows for a competitive advantage in the form of lower average cost. Highly present in Intra Industry trade. A Intra industry trade : when trading good from the same industry. Greater in high technology industries, countries with larger number of FDI and in countries that are more open with trade.The price of the exported good goes down. 3 External economies of scale: Trade of products between two different industries. Firms get more productive as the # of firms in the industry goes up. This is because competition would increase the economy of scale from the producer to the consumer. 4 Dynamic 5 Gravity Trade Model: Economies of scale increase, as the distance between trade partners decreases which also decreases the impediments to trade all of which increase trade. A economic size: Trade depends on the economic size of the country because they have more purchasing power and higher disposable income leading to more trade. B Distance between countries: Small countries that are further from each other are much less likely to trade because transportation costs and preferences make it more convenient to trade. 6 Impediments to trade embargos, sanctions, tariffs, quotas, health restrictions. 7 Consumer surplus: The difference of what we are willing to pay as a consumer Vs. what we actually have to pay. (above price , below the demand curve) 8 Producer Surplus: From the supplier side, there will always always be a supplier willing to supply for cheaper. (he area over the supply curve and below the price) 9 Net welfare: Sum of consumer surplus + Producer Surplus 10 Small country mode: When purchases from a small country has little effect on the world market price. 11 Effects of trade in a small country model: Consumer surplus has increased and Producer surplus has decreased, So the area which was a part of producer surplus and is now a part of consumer surplus but that doesn't make a change but the new area that has been added into the consumer surplus is the increased amount to the net welfare. Chapter 6 Theory of Tariffs and Quotas 1) Consumer Surplus Value received by consumers that is in excess of the price they pay. 2) Producer Surplus Value received by producers that is in excess of the price they pay to produce the good. 3) Deadweight loss destruction of value that can not be compensated by a gain somewhere else (sometimes referred to as an efficiency loss). 4) Rent Seeking Any activity that uses resources to try and capture more income without actually producing a good or service. 5) Innovation Open economies grow faster than closed economies. Economies closed to trade will have less innovation 6) Nominal Rate of Production The rate levied on a given product 7) Effective rate of Protection Takes into account the nominal rate and any tariffs on intermediate inputs. This gives a clearer picture of the overall amount of protection that any given product receives. 8) Voluntary Export Restraint (VER) a country agrees to limit its exports for a period of time. This usually involves coercion and threatening on the importing countries part. 9) The main difference between Tariffs and quotas is there is no government revenue from quotas. 10)The Second major difference between tariffs and quotas is that a quota remains fixed while a tariff increases with the quantity of imports.
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