IBE 4

21 flashcards · Other · by Daniel F.

1. Pushing trade - Methods of export dumping

   Predatory dumping - Lower prices temporarily to drive competitors out of market rare cyclical dumping - Sell at below-cost prices when local demand is very low or supply very high. Examples: during recessions; agricultural products efficient price discrimination - Charge a lower price to foreigners because of different market structure (more price-elastic demand, more competition, no possibility to re-import) efficient importing country benefits CS gain > PS loss

2. Export subsidies

   financial assistance given by government to exporters expansion in production increase in domestic price decrease in foreign price decrease in welfare in the exporting country, increase in the importing country net welfare negative

3. Export subsidy in a small country

   b and d are consumption and production effect

4. Export subsidy in a large country

   b and d are consumption and production effect

5. effect of subsidy on the importing countries and world

6. Countervailing duty

   can be imposed to keep trade fair for the import-competing firms in the importing country with tariffs to balance out the subsidy in the exporting country subsidy is passed to customers globally efficient, the countervailing country is worse of compared to the situation with the subsidy, but better off than under free trade. C in countervailing duty

7. Strategic export subsidies

   Export subsidies can be used to eliminate competitors from a market and establish a monopoly position on an oligopoly market Welfare in the tariff (or quota-) imposing country can rise if the tariff helps to eliminate competitors and allow the country/firms to capture a larger market share

8. trade unions/trade blocs

   Agreement to lower/remove trade barriers between partners, while imposing barriers against outside countries

9. trade blocs - degrees of integration

   Free trade area: Separate national barriers against outside countries, NAFTA Custom union: Common external trade barriers Common market: Custom union + free movements of production factors, EU Economic Union: Common market + unification of all economic policies, Benelux

10. Changes in trade after trade bloc in effect

    more trade among members, resources may not go to efficient producers Trade creation - gains from forming a trade union. Trade diversion - loss from forming a trade union

11. Trade creation

    Consumption effect gain D Replacing high-cost domestic production with lower-cost production in member country B

12. Trade creation + trade diversion

    Consumption effect gain D Replacing high-cost domestic production with lower-cost production in member country B Loss from replacing low-cost production outside the trade bloc with high-cost production in partner country E

13. Net welfare gain the greater after trade bloc:

    The lower the cost of production in the partner country compared to the outside world. The more price elastic (flatter) the demand curve

14. Other benefits from forming a trade bloc

    larger market better economies of scale more FDI increased competition lower prices production is more cost efficient more varieties for consumers

15. trade embargo

    make trade with a country impossible hurts first 2 parties, benefits third parties

16. Effect of embargo in embargoing country

17. Effect of embargo in non-embargoing country

18. effect of embargo in embargoed counrty

19. effect of embargo on world

20. Welfare effect of embargoes

    embargo reduces welfare in embargoing countries might have other economic benefits target country may be even worse off

21. embargoes fail to work if

    political failure: target country does nothing economic failure: damage is bigger on imposing country than target country likelier the steeper the export supply curve of embargoer or the flatter the import curve of embargee