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22 Cards in this Set
- Front
- Back
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Terms of Trade
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(Price Exports)/(Price Imports)- the quantity of imports that can be purchased through the sale of a fixed quantity of exports
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Labor Theory of Value
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Classical economist David Ricardo's labor theory of value holds that the value of a good (how much of another good or service it exchanges for in the market) is proportional to how much labor was required to produce it, including the labor required to produce the raw materials and machinery used in the process.
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Assumptions of the Hecksher-Ohlin model of trade
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The model essentially says that countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor(s)
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Specific Factors model (short-medium run)
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The specific factors name refers to the given that in the short-run, specific factors of production such as physical capital are not easily transferable between industries. The theory suggests that if there is an increase in the price of a good, the owners of the factor of production specific to that good will profit in real terms.
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Stolper-Samuelson theorem and conclusions for long-run
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The theorem states that—under some economic assumptions (constant returns, perfect competition, equality of the number of factors to the number of products)—a rise in the relative price of a good will lead to a rise in the return to that factor which is used most intensively in the production of the good, and conversely, to a fall in the return to the other factor.
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Adjustment costs of trade liberalization and ways to address these costs
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!!
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specific tariff vs. advalorem tariff
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tariff in a set amount per unit versus in a percentage of the market price of the unit
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consumer surplus
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the difference between the maximum price a consumer is willing to pay and the actual price they do pay.
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producer surplus
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the amount that producers benefit by selling at a market price mechanism that is higher than the least that they would be willing to sell for.
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trade creation
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some production of one customs union member is replaced by another member's lower cost imports
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Free Trade Area
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an association of trading nations in which members agree to remove all tariff and non-tariff barriers among themselves. Each member however maintains its own barriers against outsiders. ie NAFTA
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Customs Union
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an agreement among two or more trading partners to remove all tariff and non-tariff barriers among themselves. Meanwhile, they agree to impose identical trade barriers on outsiders. ie Benelux (Belgium, Netherlands, Luxembourg)
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Common Market
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1) Free movement of goods and services among members, 2) the initiation of common external trade restrictions, 3) the free movement of factors of production across national boarders. ie European Union
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Economic Union
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national, social, taxation, and fiscal policies are harmonized and administered by supranational institution. ie United States
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trade creation effect
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occurs when one members domestic production is replaced by another members lower cost production through importation
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Welfare effects of a customs union
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the result of the two opposing forces, trade creation effect and trade diversion effect.
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unilateral trade sanctions
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ineffective, the sanctioned country will simply trade with other countries
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embargo
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the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it
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anti-dumping duties
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product specific, created in response to product dumping that undercuts domestic producers ie European fruit in Great Britain
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countervailing duties
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not-product specific, created to neutralize the effects of subsidies
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Cartels fall apart for four reasons:
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1) Competetions from non-cartel members
2) Cheating on production quotas 3) Defection of Cartel Members 4) Increased substitution by consumers |
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International Commodity Agreements
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tries to eliminate price volatility; buffer stock is bought up (and destroyed, OR released to effect the amount of commodity on the market and therefore the price.
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