Globalization (exam2 lec2)

Question 1

What is globalization?

Answer 1

The increasing economic, political, and cultural integration of different countries

Question 2

What determines average wages?

Answer 2

Productivity

Question 3

What is the effect of international trade on income inequality in the US?

Answer 3

Because a lot of labor is outsourced, it raises income inequality in the US - meanwhile, globalization has raised the income of highly educated workers due to the increase in demand for the services they create

Question 4

What does it mean to import?

Answer 4

To BUY goods or services from foreign sellers

Question 5

What does it mean to export?

Answer 5

To SELL goods or services to foreign buyers

Question 6

How does comparative advantage relate to international trade?

Answer 6

If a country can complete a task at a lower opportunity cost than another one, it has a comparative advantage in it and should specialize in it

Question 7

What are trade costs?

Answer 7

Extra costs incurred as a result of buying or selling internationally rather than domestically

Question 8

What are the THREE factors that shape comparative advantage?

Answer 8

1. Abundant inputs 2. Development of a specialized skill 3. Exploit the benefits of mass production

Question 9

What is source #1 of comparative advantage? hint: I

Answer 9

Abundant inputs - take advantage of what you have to get what you want - ie. having abundant natural resources (like gold) or investing heavily in higher education and having a lot of colleges and universities (the US)

Question 10

What is source #2 of comparative advantage? hint: S

Answer 10

Develop a specialized skill (ie. watches from Switz, US in Hollywood)

Question 11

What is source #3 of comparative advantage? hint: P

Answer 11

Mass production - when you are producing a TON of a good, you can invest in creating highly specialized and efficient production lines

Question 12

What is the world price?

Answer 12

The price that a product sells for in the global market

Question 13

What are the domestic demand and supply curves?

Answer 13

The quantity of a good that all domestic consumers/sellers plan to buy/sell

Question 14

If world price < domestic equilibrium, what does a country need to do?

Answer 14

Import the good

Question 15

If world price > domestic equilibrium, what does a country need to do?

Answer 15

Export the good

Question 16

What are the four steps to evaluate how imports shape domestic markets?

Answer 16

1. Evaluate EQU with no trade 2. Figure out the new price 3. Determine the quantities demanded and supplied by domestic buyers and seller at the new price 4. Assess the quantity that will be imported

Question 17

What do imports do to ECONOMIC SURPLUS?

Answer 17

Imports RAISE economic surplus (for consumers - producers LOSE surplus)

Question 18

Argument #1 for limiting international trade (+ the counterargument) hint: Strat

Answer 18

National security requires we produce STRATEGICALLY IMPORTANT goods ourselves, these concerns can be overstated

Question 19

Argument #3 for limiting international trade (+ the counterargument) hint: ADL

Answer 19

Anti-dumping laws prevent unfair competition, it’s difficult to figure out if foreign businesses are actually dumping their goods on the market

Question 19

Argument #2 for limiting international trade (+ the counterargument) hint: Prot

Answer 19

Protectionist policies can help INFANT industries develop, some infant businesses fail to grow up

Question 20

Argument #4 for limiting international trade (+ the counterargument) hint: reg

Answer 20

Trade shouldn’t be a way to skirt regulations, some standards for high-income developed countries aren’t appropriate for lower-income less developed nations

Question 21

Argument #5 for limiting international trade (+ the counterargument) hint: Job

Answer 21

Foreign competition may lead to job losses, but trade changes what workers do, not necessarily how many people work

Question 22

What is a tariff?

Answer 22

A tax on imported products

Question 23

What will tariffs do on imports?

Answer 23

Raise price, lower quantity demanded by domestic buyers and raise quantity supplied by domestic sellers, lowering imports

Question 24

What is red tape?

Answer 24

Added, non-tariff costs (like wait time) to imports (doesn't raise revenue)

Question 25

What are import quotas?

Answer 25

A limit on the quantity of a good that can be imported