Free Trade: Absence of Barriers to Free Flow of Goods and Services between Countries

Topics: International trade, Tariff, Free trade Pages: 12 (3891 words) Published: April 25, 2014
1. Define the term Free Trade: The absence of barriers to the free flow of goods and services between countries. 2. What does this chapter look at? -The political reality of IT
-It presents us with a clear example of government intervention in IT that is designed to protect the interests of domestic producers. -The political and economic reasons tha government have for intervening in IT. (when govs. intervene, they often do so by restricting imports of goods and services into their nations, while adopting policies that promote domestic production and exports.) -The emergence of the modern international trading system and the creation of a series of multinational treaties. The purpose of treaties has been to lower barriers to the free flow of goods and services between nations. -WTO promotes free trade by limiting the ability of national govs. to adopt policies that restrict imports into their nations. 3. Define the term tariff: A tax levied on imports or exports. 4. Define the term, specific tariff: tariff levied as a fixed charge for each unit of good imported 5. Define the term, Ad valorem tariff: a tariff levied as a proportion of the value of an imported good. 6. In most cases, why are tariffs placed on To protect domestic producers from foreign competition by raising the price of imported imports? goods. Tariffs also produce revenue for the government. 7. What is the important thing to Who suffers and who gains. Domestic producers gain- consumers lose because they must understand about import tariffs? pay more for certain imports. 8. What are the two conclusions that can be derived from economic analysis of the effect of import tariffs? 1- tariffs are generally pro-producer and anti-consumer.

2- import tariffs reduce the overall efficiency of the world economy. 9. Sometimes tariffs are levied on exports of a product from a country.... what are the two basic objectives for this? 1- to raise revenue for the gov.

2- to reduce exports from a sector, often for political reasons. 10. Define the term subsidy: a payment made by the government to producers of a good or service, which is intended to lower their costs. 11. For forms do subsidies take? cash grants, low-interest loans, tax breaks and gov equity participation in domestic firms. 12. Byloweringproductioncosts,howdo subsides help domestic producers (two ways)? 1- competing against foreign imports 2- gaining export markets 13. What tends to be the largest beneficiary Agriculture. of subsidies in most countries? 14. Define the term, Import Quota: a direct restriction on the quantity of a good that can be imported into a country. 15. Define the term Tariff Rate Quota: Lower tariff rates applied to imports within the quota than those over the quota. This is a common hybrid of a quote and a tariff. See Figure 7.1 16. Definetheterm,VoluntaryExport Restraint (VER) A quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's government. This is a variant on the import quota. Foreign producers agree to VERs because they fear more damaging punitive tariffs or imports quotas might follow if they do not. Agreeing the VERs is seen as a way to make the best of a bad situation. 17. Define the term , Quota Rent:

Extra profit producers make when supply is artificially limited by an import quota. If a domestic industry lacks the capacity to meet demand, an import quota can raise prices for both the domestically produced and the imported good. 


18. Define the term Local A requirement that some specific fraction of a good be produced domestically. Content Requirement: These had been widely used by developing countries to shift their manufacturing base form the simple assembly of products whose parts a manufactured elsewhere into the local manufacture of...
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