Econ 9+10+11+12 Chapter Test

Front 1

non tariff barrier

Back 1

any policies used by governments to reduce imports besides tariffs

Front 2

Import Quota

Back 2

A limit on the total quantity of imports into a country

Front 3

Fixed Favoritism

Back 3

A way to allocate import licenses. This is when the government allocates the licenses for free without competition. This gives the importers the benefits instead of the government. This makes the quota worse for the nation than an equivalent tariff.

Front 4

Auction

Back 4

A way to allocate import licenses. The government will sell licenses to the highest bidder competitively. This gives the government revenues that are almost equivalent to the amount that a tariff would collect.

Front 5

Resource-using Application Procedures

Back 5

A way to allocate import licenses. This forces firms to apply for licenses. This causes a larger loss than an auction because it wastes resources. This makes the quota worse than an equivalent tariff.

Front 6

Voluntary Export Restraint

Back 6

This is an unofficial trade barrier where the importing country coerces the exporting country into limiting exports. This is worse than a tariff for the importing country because foreign exporters get the government revenue instead. This occurs, because foreign exporters get a price markup because of the limiting of supply.

Front 7

Product Standards

Back 7

These are NTBs that limit imports by making them adhere to certain standards which can be discriminatory for foreign firms.

Front 8

Domestic Content Requirement

Back 8

This NTB mandates that a product produced and sold in a country must have a specified minimum amount of domestic production value.

Front 9

Government Procurement

Back 9

When the government favors local producers instead of foreign exporters in allocating government contracts.

Front 10

U.S. Section 301

Back 10

Gives President ability to negotiate to eliminate unfair trade practices of foreign governments that limits imports from the U.S.

Front 11

Foreign Retaliation (Cost of protection)

Back 11

Other governments may counteract our trade barriers by enacting their own.

Front 12

Enforcement costs (Cost of protection)

Back 12

The expense of enforcing a trade barrier with government officials

Front 13

Rent Seeking Costs (Cost of protection)

Back 13

Local firms seeking protection may use techniques such as lobbying that use resources.

Front 14

Rents to foreign producers (Cost of protection)

Back 14

VERs encourage foreign exporters to raise their export prices

Front 15

Innovation (Cost of protection)

Back 15

Protectionism can be a disincentive towards creating new technology because there is less competitive pressure.

Front 16

World Trade Organization

Back 16

Founded in 1995 after GATT.
Liberalize trade restrictions.
Move towards Free Trade.
Can't favor exporters or distort trade.
Dispute settlement procedure can authorize retaliation if offending country does not correct its policy.
Average tariffs have fallen greatly since the WTO/GATT was created.

Front 17

Most Favored Nation Principle (MFN)

Back 17

Part of WTO agreements. All nations in the WTO gains trade advantages. Having MFN status means that every nation is treated equally. A nation with MFN status can be treated no differently than other countries with MFN status. There are exceptions for the preferential treatment of developing countries, regional free trade areas, and customs unions.

Front 18

Tariff effects on Domestic Employment

Back 18

If the government needs to raise employment, a tariff can be good for the country as it leads to more employment in the sector as local production of the product increases.

Front 19

Tariff effects on Local Consumption

Back 19

Tariff can distort prices in the right direction to deal with negative externalities. If there is something bad about local consumption of the product, then a tariff can be good for the country as it cuts consumption due to increased prices.

Front 20

Tariff effects on government

Back 20

If the government needs to collect more revenue, then a tariff can be beneficial.

Front 21

First Best World

Back 21

Ideal world with no distortions

Front 22

Second Best World

Back 22

Real world of distortions

Front 23

Specificity Rule

Back 23

If an externality is present, government policy should intervene as directly as possible on the specific source of the externality, to most enhance economic efficiency. This encourages government policies other than import barriers. Example of using subsidy instead of tariff to promote local production

Front 24

Infant Industry Argument

Back 24

Asserts that a temporary tariff is justified because it cuts down on imports while the infant domestic industry learns how to produce at low cost. Infant industry eventually won't need a tariff.

Front 25

Dying Industry Argument

Back 25

The government should offer temporary assistance to industries that are in decline as it takes time for fired workers to find new jobs.

Front 26

Developing Government Argument

Back 26

Tariffs are needed in developing countries, because they are often the only reliable source of revenue for the governments that can't easily collect other taxes.

Front 27

National Defense

Back 27

A country needs to have access to products that maintain national defense as imports may not be available due to hostile countries. Specificity rule says that these products should be stockpiled or encouraged with a subsidy.

Front 28

Non Economic Arguments for Protection

Back 28

National Pride
National Defense
Income Redistribution

Front 29

Dumping

Back 29

The export price is lower than the price charged for
comparable domestic sales in the home market of the
exporter.

Front 30

Predatory Dumping

Back 30

occurs when a firm temporarily
charges a low price in the foreign export market, with
the purpose of driving its foreign competitors out of
business. Once the rivals are gone, the firm will use its
monopoly power to raise prices and earn high profits.

Front 31

Cyclical Dumping

Back 31

occurs during periods of recession.
During the part of the cycle when demand is low, a firm
tends to lower its price to limit the decline in quantity
sold. It will sell as long as price is above short run average variable cost.

Front 32

Seasonal Dumping

Back 32

intended to sell off excess inventories of a
product.

Front 33

Persistent Dumping

Back 33

occurs because a firm with market power uses
price discrimination between markets to increase its total profit. A
firm maximizes profits by charging a lower price to foreign buyers
if It has less monopoly power (more competition) in the foreign market than it
has in its home market, and if
Buyers in the home country cannot avoid the high home prices by buying
the good abroad and importing it cheaply.

Front 34

Strategic Trade Policy

Back 34

It is at least possible that export subsidies could be
good for the exporting nation and for the world as a
whole.
If export competition takes the form of an oligopoly
game between two giant producers, each of which
could dominate the market alone (e.g. Boeing vs.
Airbus) then the government can offer a subsidy to its
exporter as a strategic trade policy.

Front 35

Export Subsidies

Back 35

They are condemned by the WTO, with the
exception of export subsidies to agricultural
products, but they are used.
If the market is competitive, an export subsidy
brings a loss to the country offering the
subsidy and loss to world.

Front 36

Free Trade Area

Back 36

Free Trade Among Members (NAFTA)

Front 37

Customs Union

Back 37

Free Trade Among Members + Common External Tariffs (Example MERCOSUR)

Front 38

Common Market

Back 38

Free Trade Among Members + Common External Tariffs + Free Movements of Factors of Production (Example EU)

Front 39

Economic Union

Back 39

Free Trade Among Members + Common External Tariffs + Free Movements of Factors of Production +Harmonization of All Economic/Fiscal/Monetary Policies (Example Belgium/Luxembourg + EU is on path to Economic Union)

Front 40

Reasons Against Trade Blocs

Back 40

It may encourage people to buy from higher-cost
partner suppliers.
2. Deals with individual nations destroyed much of the
gains from global trade in 1930s—today’s trend
towards blocs is in some ways similar to that
arrangement.
3. It may cause international friction because letting
someone in means shutting others out.
Also violated WTO MFN Principle.

Front 41

Trade Creation

Back 41

The amount by which a trade bloc raises the total volume of world trade

Front 42

Trade Diversion

Back 42

The volume of trade that a bloc diverts from lower-cost outside suppliers to higher-cost partner-country suppliers.

Front 43

Other Gains from Trade Blocs

Back 43

1) Increased competition that lowers prices or
costs.
2) Enhanced ability to achieve scale economies.
3) Attracting more direct investment by foreign
companies.

Front 44

Overall Effects of a Trade Bloc

Back 44

Depends on whether Trade Creation or Trade Diversion is greater

Front 45

Rules of Origin

Back 45

In Free Trade Areas, member countries must use rules of origin and maintain customs administration
on the borders between themselves to keep
outside products from entering the high-barrier
countries cheaply by way of their low-barrier
partners.