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Level 53

Free Trade & Protectionism

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lower prices,
Gains from international trade
comparative advantage (HL)
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
absolute advantage (HL)
Exists when a country can produce a good or service at a lower cost than other countries.
david ricardo (HL)
(1772-1823)-English economist who formulated the comparative advantage
perfect knowledge?
limitations of comparative advantage
The W.T.O is empowered by a multilateral agreement of december 1993 to moderate trade disputes among its member states.
free trade
: takes place between countries when there are no barriers to trade put in place by governments or international organizations. Goods and services are allowed to move freely between countries.
arguments for protectionism
protects domestic employment
Exporting a product at a price below the price it normally sells for in its home market. This is usually done to build market share.
anti dumping
Additional duties assessed on imported goods found to be sold at a price less than "fair value" (e.g., below the cost of production in the exporting country)
arguments against protectionism
may raise prices to consumers and producers for the imports they buy,
A government tax on imports or exports
A limit placed on the quantities of a product that can be imported
A government payment to buyers or sellers on each unit purchased or sold.
effect of tariff
Raises domestic price above world price,
effect of quota
Decrease production from optimal levels, causes gain in domestic producer surplus
effect of subsidy
shifts curve down by quantity of subsidy, domestic producers increase supply