International Economics Relations II

06.10.2015
Exam - 70 questions - maybe less
e-mail - k.zoladkiewicz@ug.edu.pl

International and domestic economies

the gains from trade
how much to trade ?
trade statistics (WTO Publications International Trade statistics 2014) www.wto.org/english/
res_e/statis_e/its2014_e/its14_toc_e.html

TPP - Trans pacific partnership (12 countries) - is a trade agreement between several Pacific
Rim countries concerning a variety of matters of economic policy. Among other things, the TPP will
seek to lower trade barriers such as tariffs, establish a common framework for intellectual property,
enforce standards for labour law and environmental law, and establish an investor-state dispute
settlement mechanism. Signed by Brunei, Chile, Singapore, and New Zealand in 2006. Beginning
in 2008, additional countries joined for a broader agreement: Australia, Canada, Japan, Malaysia,
Mexico, Peru, the United States, and Vietnam, bringing the total number of participating countries
to twelve.
World merchandise export:
World export grows quicker than world GDP and world production. (the whole period after The
Second World War)
1. Agricultural products
2. Fuels and mining products
3. Manufactures
Worlds merchandise production
1. Agriculture
2. Mining
3. Manufacturing
Major group of products in international trade 2013.

Agricultural products: value: 1745 billion dollars; market share: 9,5%

Fuels and mining products: value: 3997 billion dollars; market share 21,8%
Fuels: value: 3258 billion dollars; market share 17,8%
Manufactures: value: 11848 billion dollars; market share 64,7%
Iron and steel: value: 454; market share 2,5%
Chemicals: value 2001; market share 10,9%
Office and telecom equipment: value: 1750; market share 9,6%

 Automotive products: value: 1348; market share 7,4%

Textiles: value: 306; market share 1,7%
Clothing: value: 460; market share 2,5%

top 7 major (exporters) 2013.

1.
2.
3.
4.
5.
6.
7.

China: value: 2209 billion dollars; market share: 11,7%

USA: value: 1580 billion dollars; market share: 8,4%
Germany: value: 1453 billion dollars; market share: 7,7%
Japan: value: 715 billion dollars; market share: 3,8%
Netherlands: value: 672 billion dollars; market share: 3,6% WHY HOMEWORK
France: value: 580 billion dollars; market share: 3,1%
Korea republic: value: 560 billion dollars; market share: 3,0%

top 7 major importers 2013

1.
2.
3.
4.
5.
6.
7.

USA: value: 2329 billion dollars; market share: 12,3%

China: value: 1950 billion dollars; market share: 10,3%
Germany: value: 1189 billion dollars; market share: 6,3%
Japan: value: 833 billion dollars; market share: 4,4%
France: value: 681 billion dollars; market share: 3,6%
UK: value: 655 billion dollars; market share: 3,5%
HongKong China: value: 622 billion dollars; market share: 3,3%

Trends in global trade

Cheap Oil Drives Growth: After several years of being squeezed by higher oil costs,
manufacturers and consumers will benefit from a recent drop in oil prices. Excess supply, driven in
part by new technologies and techniques in the oil supply business, have resulted in a significant
drop in oil prices. Lower energy costs are expected to have a direct impact on overall US growth.
Cooperation among Countries: Countries cooperate with each other in thousands of ways
through international organizations, treaties, and consultations. Such cooperation generally
encourages the globalization of business by eliminating restrictions on it and by outlining
frameworks that reduce uncertainties about what companies will and will not be allowed to do.
Countries cooperate:
To gain reciprocal advantages
To attack problems they cannot solve alone
To deal with concerns that lie outside anyones territory.
Liberalization of Cross-border Movements: Every country restricts the movement across its
borders of goods and services as well as of the resources, such as workers and capital, to produce
them. Such restrictions make international trade cumbersome; further, because the restrictions
may change at any time, the ability to sustain international trade is always uncertain. However,
governments today impose fewer restrictions on cross-border movements than they did a decade

or two ago, allowing companies to better take advantage of international opportunities.

Governments have decreased restrictions because they believe that:i) So-called open economies
(having very few international restrictions) will give consumers better access to a greater variety of
goods and services at lower prices,ii) Producers will become more efficient by competing against
foreign companies, and If they reduce their own restrictions, other countries will do the same.
Transfer of Technology: Technology transfer is the process by which commercial technology is
disseminated. This will take the form of a technology transfer transaction, which may or may not be
a legally binding contract, but which will involve the communication, by the transferor, of the
relevant knowledge to the recipient. It also includes non-commercial technology transfers, such as
those found in international cooperation agreements between developed and developing states.
Such agreements may relate to infrastructure or agricultural development, or to international;
cooperation in the fields of research, education, employment or transport.
Homework
Table 2 statistics.
Why Netherlands are on the fifth place at the export stats ?
Why Uk is second at the Leading exporters and importers in world trade in commercial services,
2013 ?
Why World merchandise exports by major product group, 2013 decreased from 2011 to 2012.

13.10.2015
Homework - Krugman, chapter 2 Gravity model
Why to focus on international trade ?
the world is getting smaller everyday
signs of international transactions are all around us
the importance of international trade has never been as clear as it is today
influential world leaders=important world traders
interaction between sovereign states
International vs domestic economic issues
Motives and behavior are the same
yet, new and different concerns
Geographically closer but trade can meet restrictions: currency (exchange rate), imposition of
quotas and other trade instruments, feature: movement across borders.
Benefits of international trade.
Development of the company - international trade helps to expand the company. It is obvious that
when a firm enters to a new country quickly attracts new customers. It is much easier to do it in
contrast of trying to explicate your market place in home country. We can say it is extending
sales potential of the existing products.
Increasing sales and profits
Gaining a global market share

 Spread business risk For example when we act only in the home market all of the problems
associated with it will be for us very bad news. On the other hand when a company operates
internationally the risk is reduced.
Second thing is a diversity of products available on the international market. Nowadays to
succeed, people need to use modern solutions and products which are not always available at
domestic market. It is very difficult to find a gap in the market, but for sure easier way to do it is
through international trade.
Be more competitive use of Arbitrage which is taking advantage of the difference in price. For
example we can go through the all formalities and import some goods from China [After
appropriate research] and sell them favorably on the domestic market. It is a big plus of foreign
trade
Dumping Customer acquisition through entering the foreign market with lower prices than it is
normally. It is not completely fair but common.
Exchange rate determination
own currencies are a key difference between international and national economics
relative values of currencies (exchanges rates) can change a lot
1 January 1999 1 euro = $1.17 - Early 2002 1 euro = $0.85 (i tak dalej, bardzo elastic)
Fluctuation because of floating exchange rate
The international Capital Market
The growing importance of the international capital market: large sums are lent to firms and
governments, unable to be paid back (emerging markets)
Since 1982 (Mexico) until 1990s debt crisis in Latin America
1994 Mexico
Since 1997 crises in South East Asia
2002 Argentina
Since 1960s London Eurodollar capital market has been established
International capital markets differ from domestic markets (currency fluctuation, legal problems
with creditors)
International Policy Coordination
America coughs and the rest of the world has a flu
Crises of 2008 (Lehman Brothers)
In an integrated world economy one countrys economic policy usually affect other countries
An acceptable level of harmony in international trade policies has been governed by GATT/WTO
It is well established tradition to coordinate on international trade policies
Balance of Payments
Is it good to run a trade surplus ? For many years ? (China case, Germany case, Korea case)
Is it good to run a trade deficit ? (the U?S case since 1982)
Countrys balance of payments must be placed within economic analysis context (international
capital flows, national accounts, monetary policy)
Prices of all commodities (raw materials) are paid and calculated in $$$$ - cause it is the most
important currency in the world

27,10,2015
History of international business
International business has been a major force in shaping borders and changing world history
The Greek city-states
The Roman Empire (Pax Romana)
The British Empire
Pax Americana (1945-1990)
Global links around the world that binds all countries, financial institutions and individuals much
closer than ever before
Transportation links, telecommunication integration

The World Economics (XIX & XX)

Technical and industrial revolution

mass production
strong economic linkages (all nations included in international trade)
international currency (silver gold dollar)
world price (esp., standardised products)
global links around the world that binds all countries
progress of transportation links (cheaper, frequency of connections) - Crucial
financial institutions and individuals much closer than ever before, financial crises)
telecommunication, integration
impact of trade policy

What is international economics about - the most important personas

David Hume Of The Balance Trade - 1758
Through his discussions on politics, Hume developed many ideas that are prevalent in the field of
economics. This includes ideas on private property, inflation, and foreign trade.[178] Referring to
his essay "Of the Balance of Trade", economist Paul Krugman has remarked that "David Hume
created what I consider the first true economic model."
Adam Smith The Wealth of Nations - 1778 - Absolute Advantage
He identified the division of labour as the key to The Wealth of Nations.
The individual can have much higher material living standards by specializing than by being
self sufficient - absolute advantage
A pin factory in which different specialists make the various components and join them
together
Industrial revolution needs: secure property rights, enforceable contracts, reduced transport
costs, specialization within larger and larger market area (policemen)
The main constrain: the extent of market

Theory of absolute advantage - A theory that suggests that under free trade, a nation
gains by specializing in economic activities in which it has an absolute advantage.

 David Ricardo Principles of Political Economy and Taxation - 1817 - Comparative advantage
Great contribution in Principles of Political Economy and Taxation
The gains from trade depend on comparative differences
Specialization by comparative advantage creates a potential win-win situation
The key to increase in total output is the existence of differences in opportunity cost
Opportunity cost of product A in terms of product B is the number of B that could have been
produced with the resources used to produce a given number of product A
Globalization, financial crises, impact of trade policy key ideas and old questions still valid

Theory of comparative advantage - A theory that focuses on the relative (not absolute)
advantage in one economic activity that one nation enjoys in comparison with other nations.

The Ricardian Model

A country has a comparative advantage in producing a good if the opportunity cost of producing
that good in terms of other goods is lower in that country than it is in other country
Trade between two countries can benefit both countries if each country exports the goods in
which it has a comparative advantage
International trade is solely due to international differences in the productivity of labour

All analysis and trade theories remain highly relevant to the 21st century
Globalisation, financial crisis, impact of trade policy - key ideas and old questions still valid
Why countries specialize and trade ?
1. Differences in resources or in technology, specialization in things countries do relatively better
2. economies of scale, specialization in limited range of goods and services
International division of labor (miedzynarodowy podzial pracy) - IMPORTANT
The specialization of particular countries in distinct branches of production, whether this be in
certain products, or in selected parts of the production process. The concept suggests that the
spread of markets and production processes world-wide creates (as indeed this same process has
done within particular economies) a growing differentiation of economic activity. However, whereas
in orthodox economics the division of labour as such is seen as providing mutual benefit for these
specialized branches of activity, alternative analyses of the international division of labour stress
the inequalities and structured hierarchies which it creates
Types of IDoL International division of labor
Traditional: 2 groups of countries and manufactured goods vv. agricultural and raw materials.
Inter-industry trade (origin) IDoL
Contemporary: specialization in specific goods and services, between branches, deep
specialization within products. Intra-industry trade (intra product, deeper and deeper into
product, for ex. various parts for a Boeing planes are produced in different countries) IDoL

The Pattern of Trade

Some patterns of trade result from climate, resources (coffee in Brazil, oil in Saudi Arabia)
Technology and international differences in labour productivity (cars in Japan, aircrafts in the EU)
Interaction between supplies of factors (capital, labour, and land) and utilization for production of
national resources
There exists also a substantial random component in the patterns of trade
Economies of scale EoS
An economy with a high ratio of land to labour will be relatively better at producing food than
economy with a low ratio of labour to land
labour-abundant
landabundant
capital-abundant
Abundance is defined in terms of a ratio and not in absolute quantities
Production is more efficient the larger the scale at which it takes place
Give countries an incentive to specialize and trade even in an absence of resources and
technology
EoS provide an incentive for international trade
International trade makes possible for each country to produce a limited number of goods and to
take advantages of EoS
International trade leads to increase in the variety of goods available (specialized economies)
Specialized economies trade with each other to have a possibility to consume the full range of
goods
Gains form international trade
Countries are different - Countries benefit from their differences
Trade helps to achieve economies of scale in production
Country produces a limited range of products but at a larger scale and more efficiently
Trade benefits
Trade as an indirect method of production (because this indirect production requires less labour
than direct production)
Trade enlarges consumption possibilities
GAINS FROM TRADE
International division of labor
Specialization in production and trade, greater efficiencies of large scale production, exchange
mutually beneficial.
Common misconception that trade is harmful if there are large disparities between countries in
productivity or wages
Trade may hurt some groups of producers and may alter the distribution of income between
owners of capital and workers

Globalization of business: opportunity or threat?

Creating wealth that benefits nations and individuals worldwide
Exporting worldwide
Help change the labels of countries from developing to developed
Also causes its share of problems (wealth to MNCs and investors at the expense of the poor,
spoils the environment, fails to relieves massive debts of developing countries)
Economies of scale
External: depending on the size of the industry
Size of the industry
A bigger industry may allow more efficient provision of specialized services and machinery
The efficiency of firms is increased by having a larger industry
Many small firms and perfectly competitive
Internal: depending on the size of the firm
The cost of unit depends on the size of a firm not on that of the industry
Gives large firms a cost advantage over small more efficient provision of specialized
services and machinery
Leads to an imperfectly competitive market structure
Competitive market
Perfect competition (many buyers and sellers): firms are price takers (no influence the prices, a
tiny fraction of world market)
Imperfect competition (a few firms produces): firms are price setters (firms influence the prices
to sell more)
The Gravity Model
How the value of trade between any two countries depends on the size of these countries
economies and explain the reasons for that relationship?
Size Matters: The Gravity Model
There is a strong empirical relationship between the size of the countrys economy (GDP value
of all goods and services produced in an economy) and the volume of both, its imports and
exports
Larger the trade between any two economies is, the larger is either economy (for example:
German share in European GDP counts for its trade with the U.S. among the EU countries)
The Gravity Model:
Helps to identify anomalies in trade, such as: larger trade between Netherlands, Belgium and
Ireland with the U.S. than model predicts due to:
sharing language and descendants of Irish immigrants (IRL)
host for US-based corporations (multinational) (also due to taxation policy) - IRL
an important role of transport costs and geography in determining the volume of trade (B,
NL)

An equation:
The analogy to Newtons law of gravity (the gravitational attraction between any two objects is
proportional to the product of their masses and diminishes with distance)
The trade between any two countries is, other things equal, proportional to the product of their
GDPs and diminishes with distance (inversely proportional)
3 things determine the volume of trade between 2 counties:
size of their GDPs (proportionally)
distance between countries (inversely proportionally)
The gravity model equation gives a good approximation
However, in practice countries spend much of their income at home (the U.S. and the EU each
account for app.25% of worlds GDP and each attracts 2% of others spending)
Factors limiting international trade (impediments to trade)
Distance: strong negative effect, 1% increase in the distance is associated with a fall of 0,7-1% in
the trade between countries, neighborhood creates strong personal contacts
Barriers: trade agreements lead to more trade activities between member states, effects of
liberalization
National borders are relevant: more trade internally, border deters trade as countries were apart
1,500-2,000 miles (case: Canadian-US border)
Composition of World Trade
Different today from a generation ago or/and a century ago (dynamic change)
Modern transportation and communication have abolished distance
The world got smaller?
Smaller between 1840-1914 than much of the 20th century (can we agree to such a hypothesis?)
2 great waves of globalization: (1) railroads, steamship, the telegraph; (2) jets, Internet
Division of labour. Protectionism versus liberalization
Country climate and natural resources: tropical products in tropical countries, land-rich countries
exports
Classic disputes over free trade versus protectionism: to protect from cheap imports and to export
much of other output (natural resources)
Contemporary disputes: human resources, their skills are more important, battles over
competition from cheap labour, tech workers

The Posners Theory

The imitation lag defined as the length of time that elapses between the product first appears in
country 1 (the innovator) and the own version of country 2 on the market (requires technology,
know-how, etc.)
Central point of the theory:
Trade will be focused on new products a continually successful exporter= continually
innovating issue of countrys competitiveness
Assumes that the same technology is not always available in all countries

 A delay in the transmission or diffusion of technology from one country to another

Explains: modern division of labour
Production of a new product vs real demand for the product
Directions and structure of trade in manufacturers result from technology and use/
possibilities to utilize of innovative products
Innovative countries: technology competitiveness
Less innovative countries: price competitiveness
Developed countries are trade partners for other developed countries
The demand lag - new product as a good substitute for currently consumed products in country
no 2.
the net lag = length of the imitation - length of the demand
the net lag = imitation lag - demand lag
The Linder Theory
explanations of trade between countries - the demand side (preferences of consumers)
Hipoteza Lindera koncepcja dotyczca powstawania strumieni handlu midzynarodowego,
sformuowana przez S. Lindera w 1961 roku. Byy to czasy tumaczenia handlu midzynarodowego
rnicami w postpie technologicznym midzy pastwami. Koncepcja ta koncentruje si na
popycie i dotyczy tylko wyrobw gotowych. Zaoenia:
Eksportowane s towary, ktre znajduj zbyt take w danym kraju, poniewa nie istnieje
produkcja wyrobw gotowych wycznie na eksport
Popyt krajowy zaley od wielkoci PKB per capita
Trade in natural resource-based industries determined by relative costs of production and factor
endowments
Trade in manufactured goods dictated by similarity in product demands across countries
2 Principles:
1. Income rises, the complexity and quality level of products demanded by the countrys residents
rises (Engels law)
2. An entrepreneur gains success and market share at home and then expands to foreign
markets of similar tastes and demands.
International trade in manufactured goods influenced by similarity of demands
Countries with the most intensive trade = with similar per capita levels
These countries possess a greater like-hood of overlapping product demands (intra-trade
production)
This theory extends trade theory beyond costs consideration
Theory maybe termed market segments
With given patterns of trade allow 2 countries to trade with each other?
Which goods will be traded ?
Trade will occur where is overlapping demand

10

 International trade in manufactured goods is more intense between countries with similar per
capita income (than dissimilar)
Importance of other factors: geographically close (cultural similarities, costs of transportation)
A phenomenon - trade in both directions (other theories one way)
Trade due to product differentiation (different brands and models)
A phenomenon - Intra-industry trade
International Investment and Product Cycle Theory
The Vernons Theory (the PCT)
Focused on the product rather than the country and the technology of its manufacture, no its
factor proportions.
Appreciation of the role of information, knowledge, and the costs and power that is related to
knowledge (that is not universal free and it is important factor in the decision to trade or to invest)
Builds upon the imitation lag hypothesis in its treatment of delay of the diffusion of technology.
Technical innovations require large quantities of capital and highly skilled labour
it caters to high-income demand in a high income country
In production process it is labour0saving and capital using in nature
3 stages of the product cycle

New product
1. only 1 country producing and consuming the product
2. Highly capital-intensive and skilled labour-intensive
3. low-price elasticity of demand (high income consumers, regardless of costs) - (a monopolists)
4. Begins exporting to other advanced countries
5. A few exports to the less developed countries
6. Highly individualized product
Maturing Product Stage
1. Production capability expands in the Other Advanced Countries (OACs)
2. need for skilled labour declines
3. OACs - net exporters
4. Less developed Countries (LDCs) net importers
5. To maintain market share - investments abroad (cheaper labour and other comparative
advantages)
6. product more standardized
Standardized product
1. comparative advantage of production and export shifted to LDCs
2. Mass-produced product
3. country of production with cheapest unskilled labour
4. profit margins - thin, competition - wild
Limitation of this theory: appropriate for technology - based products.

11

The Vernons Theory

Countries of production, consumption, export are identified by their labour and capital levels, not
firms
Shifting production from the first country to OAC to LDC: changing patterns of trade, not
market share (investment FDI, TNC)
Limitation of this theory: appropriate for technology-based products
Presents globally competitive market with capital, technology, information and firms more mobile
Termed product cycle theory
A dynamic comparative advantage
17.11.2015.
Trade Policy - government policy to determine its foreign trade, measures to regulate its
international trade objectives (trade turnover, structure of trade)
To achieve desirable public objectives, but among economists strong consensus, that free trade
is the best policy.
Eternal battle between liberalism and protectionism.
Gains from trade
How much trade?
Worries about effects of international competition on prosperity of domestic industries
Shielding industries from foreign competition: relative power of some interest groups
Protectionism versus liberalism
Trade barriers versus Progress towards freer trade (avoidance of trade wars, bilateral &
multilateral negotiations)
The Theory of Trade Policy
Governments have long intervened in international trade
What are consequences of government restrictions on trade?
Any restriction will create a wedge between the domestic and world prices that reduces the
potential gains from trade
This wedge can be most simply represented as a tax on imports, a tariff
Trade Barriers
Who gets protected: agriculture, clothing: textiles (spinning, weaving), footwear, toys, steel, etc.
sensitive sectors
limits on imports (imposition of quotas, tariffs and other trade instruments)
assistance by subsidizing exports
Non tariff barriers to trade NTBs

12

Tariffs
the simple trade policies
a tax levied when a good is imported
the oldest form of trade policy (Smoot-Hawley Tariff Act of 1934)
traditionally used as a source of government income (fiscal)
ad valorem tariffs: levied as a fraction of the value of imported goods (10%)
specific tariffs: a fixed charge for each unit of imported goods (3 USD per barrel of oil)
combined tariff
Bound tariff - maximum rate of a tariff
Non-tariff barriers to trade (NTBs)
para tariff barriers - An extra fee or tax imposed on a good in addition to the tariff stated on the
country's tariff schedule.
pure non-tariff barriers (quotas for ex)
The heigh of tariffs: a prohibitive tariff (higher) / preferential tariff (1 or 2) / preferences tariff (0).
Their true purpose is to protect particular domestic sectors from import competition.
Their importance declines in modern times
Effects of a Tariff
A tariff is like a cost of transportation
A wedge between foreign and domestic prices (two markets)
A tariff raises the domestic price
The volume traded declines
The size of importing country effects on exporters price
A large country raising the domestic price but by less than the tariff rate (incydencja tla)
Not the case in a small country, imposing the tariff by the full amount, cannot affect foreign export
price
An escalated tariff structure (higher tariff rates on manufactured goods than on intermediate
inputs and raw materials)
Tariff escalation (wzmacnianie)
Higher import duties on semi-processed products than on raw materials, and higher still on
finished products.
This practice protects domestic processing industries.
Discourages the development of processing activity in the countries where raw materials
originate.
Tariff peaks
relatively high tariffs, usually on sensitive products, admits generally low tariff levels
For industrialized countries, tariffs of 15% and above are generally recognized as tariffs peaks

13

Cost and Benefits of a Tariff

can be measured using a concept of consumer surplus and producer surplus
the domestic producers of good gain, as a tariff raises the price they receive (production
distortion loss)
the domestic consumers of good lose, for the same reason (consumption distortion loss)
also a gain in government revenue
the argument for a tariff to offset a foreign
subsidy (countervailing duties CVD) or dumping
(anti-dumping duties)
consumers always pay a bill
Measuring the Amount of Protection
A tariff on an imported good raises the price received by domestic producers of that good
Protects domestic producers from the low prices resulting from import competition
Effective rate of protection (ERP) v. nominal rate of protection
Effective rate of protection - In economics, the effective rate of protection (ERP) is a measure of
the total effect of the entire tariff structure on the value added per unit of output in each industry,
when both intermediate and final goods are imported
Nominal rate of protection - The protection afforded an industry directly by the tariff and/or NTB
on its output, ignoring effects of other trade barriers on the industry's inputs. Contrasts with the
ERP.
Dual economy - A dual economy is the existence of two separate economic sectors within one
country, divided by different levels of development, technology, and different patterns of demand.
Development means almost the same as wealth.
A developed country (MEDC) is a rich country.
A developing country (LEDC) is a poor country. Development is often taken to mean the wealth of
a country.
Tariffs (direction of trade)
Export (raw materials, e.g. Russian duties on timber)
Import (mostly)
Transit (rarely: Bangladesh/India)
The net cost of a tariff
Consumer loss - producers gain - government revenue
Net effect on national welfare:
The efficiency loss: results from the distortions in the incentives facing domestic
producers and consumers (production and consumption distortion loss)
The terms of trade gain: reflecting the tendency of a tariff to drive down foreign export
prices (incydencja ca)
Not in the case of a small country

14

Other instruments of Trade Policy

Export Subsidies
a payment to a firm or individual that ships a good abroad
specific (a fixed sum per unit)
ad valorem (a proportion of the value exported)
shippers will export the good up to the point where the domestic price exceeds the foreign price
by the amount of the subsidy
causes efficiency similar to a tariff
compounds losses by causing a deterioration of the terms of trade
Export credit subsidies: form of subsidized loan to the buyer
Advance deposit requirement
Import license is issued only after the importer has given a deposit to a bank
for example, the size of deposit is equal to 3% of the value of the imports
common instrument in LDCs low developed countries
additional cost for importer (or exporter)
Ways to get license
Auctions
Be first
Be chosen
Import quota
differ from tariff
direct restriction on the quantity of some good that may be imported
is usually enforced by issuing licenses
always raises the domestic price of the imported good
no revenue for governments, only as a rent from the recipients of import licenses
quota rents: the profits received by the holders of import licenses
Assessing costs and benefits - who gets the rents ? If government of exporting country then cost
is higher that the equivalent tariff.
A voluntary export restraint (VER) or voluntary export restriction is a government-imposed limit
on the quantity of some category of goods that can be exported to a specified country during a
specified period of time.
A quota on trade imposed from the exporting countrys side instead of the importers
generally imposed at the request of the importer and agreed by the exporter to forestall other
trade restrictions.
costly, a loss on importing countries as assigned to foreign governments and restrictions
more costly than tariff that limit imports by the same amount (revenue becomes rent)
no revenue for governments, only as a rent to foreigners
in 1981, the USA negotiated with Japan to limit the exports of cars to the USA to 1.68 million a
year

15

Ad valorem tax - A tax based on the assessed value of real estate or personal property. Ad
valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are
the major source of revenue for state and municipal governments.

Customs valuation procedures:

Can act as a trade barrier similar to a tariff
Customs authorities have a right to question the valuation (and say the good is really worth $150,
not $100, duty is $15 not $10)
Other side-effect of discretionary customs valuation
Can increase the uncertainly of trading
Can increase the likelihood of corruption among customs officials
Increase the frequency of physical inspection of imported goods
Longer delays at the border and increased time costs
May require firms to hold larger inventories (indirect impact)
Local content requirements
A regulation that requires that some specific fraction of a final good be produced domestically
(must consist US components or labor)
Fraction specified in physical units
Or in value terms (min. share of the price of a good represent domestic value added)
For producers of parts provides protection as quota does
For firms no strict limit on imports provided they also buy more domestically
Innovation to allow to export parts instead using them domestically
National procurement: National procurement Purchases by the government or strongly regulated
firms can be directed toward domestically produced goods even when these goods are more
expensive than imports.
Cases:
Buy american: Purchase from US firms unless the price over 6% over the foreign suppliers price
or 12% or 50% - military spending
American coastguard regulations
Red-tape barriers: to twist normal health, safety, and customs procedures as to substantial
obstacle in the way of trade (politiers VCR)
Other instruments
Health (SPS), safety, technical barriers (TBT) often act as non-tariff barriers to trade (NTBs)
A useful rule of thumb is to minimize the trade consequences by:
standardization of health and safety norms,
agreements on eliminating trivial protectionist requirements (case: candies)
difficult because of costs (sockets & plugs, 110W electricity)

16

GDP - NI National income - production done in the country together with consumption and
investments
GNI - All production in the country with the companies and national companies with the business
taxes. All incomes within the country
GNP - The production of the all national companies
Anti dumping duties (Ads):
A particular type of protection to offset anothers country policies
Duties as response to unfair trade practices
Their level determined administratively in order to proportionate to the size of the price differential
Quasi judicial procedure adds to the complexity of such policy and increases protectionist
impact and net costs
Negative impact on trade increased uncertainty
Long history: Canadian legislation in 1904, Japan 1920, Australia, the UK, NZ, the USA in 1921
Since the 2 half of 20th century more frequent
imposed when an imported good is being sold at a price below that in home market or at less
than its average cost (injury to domestic producers)
Calculating the margin of dumping (substantial element of discretion, in the US fall in
revenues of less than 10%) (in 1970s golf carts imported from Poland to the US Florida,
adopting of constructed price and country as a comparator Canada and then Spain), the
Byrd amendment increased the incentive to initiate AD proceedings (revenues) difficult to
dismantle in 2006-2007 the EU conducted AD
investigations (9months) into imports of certain shoe imports from china and Vietnam
(constructed Brazilian prices as a proxy; determined 20% Ads, benefit the EU producers)
Countervailing duties (CVDs):
a particular type of protection to offset anothers country policies
duties as response to unfair trade practices
their level determined administratively in order to proportionate to the size of subsidy which is
being countered
quasi judicial procedure adds to the complexity of such policy and increases protectionist
impact and net costs
negative impact on trade increased uncertainty
less common (1/10 of AD cases)
imposed to offset a subsidy given to the producer of the imported good
case Japan-Korea (in jan.2006 Japan imposed 27% CDV on imports of DRAM chips from Korea,
objections to the WTO, panel duties unjustified, recalculation of duties, appeal to the WTO, the
CVDs still in place at the end of 2007 granting 2 years of protection for domestic producers)
in steel industry nearly permanent protection through Ads, CVDs or other safeguard measures
(escape clause, trigger price) provided by the EU and the USA
ADs and CVDs...
Depressed imports by 6,7% (2006)
Most favourable for those who can afford good lawyers (but case: Osram tried to initiate against
China Philips opposed in the EU)
Process non-transparent

17

 There is no upper bound to the duties that can be imposed

ADs higher than normal tariffs discriminatory - diverting trade
Tariff quota - Import quota that allows a limited quantity of specified merchandise into a country
(or withdrawal of already imported merchandise from a bonded warehouse) for consumption at a
reduced duty rate during a specified period. Also called tariff quota
How mush trade?
Worries about effects of international competition on prosperity of domestic industries
Shielding industries from foreign competition: relative power of some interest groups
Protectionism versus liberalism
Trade barriers versus progress towards freer trade (avoidance of trade wars, bilateral&
multilateral negotiations)
Gains from free trade
Better than any other policy of governments (every skeptics!)
Competition
Efficiency (otherwise firms become inefficient)
Dynamics in economy
Economies of scale (against reducing competition and the protected industry)
Incentive to seek and introduce innovation by entrepreneurs
Not quantified: costs of distorting trade with tariffs, quotas, export subsidies, and so on higher
than the conventional cost-benefits analysis measures
Against rent-seeking (often used in form of tariff rate quota (TRQ) and no licensing but
assigned on a first come, first served basis)
Their true purpose : to protect particular domestic sectors from import competition
Harmonization of regulations in hundreds of areas
Eliminating these subtle obstacles to trade
Standards (TBT, SPS) such as plugs (electric current)
Most economists continue to hold up free trade as a desirable
Trade Policy
Eternal battle between liberalism and protectionism
Eternal battle between free trade and protectionism
Trade Policy defined:
government policy to determine its foreign trade, measures to regulate its international trade
objectives (trade turnover, structure of trade)
To achieve desirable public objectives, but among economists strong consensus that free trade is
the best policy
The Theory of Trade Policy
Governments have long intervened in international trade
What are consequences of government restrictions on trade?
Any restriction will create a wedge between the domestic and world prices that reduces the
potential gains from trade
This wedge can be most simply represented as a tax on imports, a tariff

18

What should a nations trade policy be?

quotas against competitors from other countries?
import Will benefits outweigh the costs?
Arguments for deviating from free trade
Domination of special interest policies than consideration of national costs and benefits
Trade policy measures undertaken primarily to protect the income of particular interest groups
(farmers, unskilled)
Export tariffs as a tax
Effect of domestic market failures ( the theory of the second best) a partial solution
Protection against imports instead large subsidy payment increasing government budget deficit
or requirement of a tax increase
Protectionism
Electoral competition
Adoption of policies that serve the interest of the median voter
Prediction how many voters it pleases
A large number of people should be a political winner (benefits), a small group loser
Collective action (sugar in the U.S.)
Arguments for protection in developing countries (less developed)
The goal: attempt to accelerate development by limiting imports of manufactured goods to foster
a manufacturing sector serving the domestic market
Import-substituting industrialization (Latin America, former socialist countries, LDCs)
The infant industry argument (not to become too old)
Opposition towards export-oriented industrialization (HPAEs high performance Asian
economies)
Trade barriers
Who gets protected? Agriculture, clothing: textiles (spinning, weaving), footwear, toys, steel, etc.
sensitive sectors
Limits on imports (imposition of quotas, tariffs and other trade instruments)
Assistance by subsidizing exports
Protection vv free trade
International negotiation can help to avoid a trade war
The effect of international negotiations on support for free trade is straightforward
An ambitious goal: free trade in agricultural products by the year 2000 (import quotas were
required to replace with tariffs)
Eliminating all quantitative restrictions on trade in textiles and clothing (multi fiber arrangement
(MFA) until 2005
Some high tariffs remain in place
Poverty cycle - In economics, the cycle of poverty is the "set of factors or events by which poverty,
once started, is likely to continue unless there is outside intervention

19

Modernization theory - is used to explain the process of modernisation within societies.

Modernization refers to a model of a progressive transition from a 'pre-modern' or 'traditional' to a
'modern' society.
Dependency theory - Dependency theory is the notion that resources flow from a "periphery" of
poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of
the former. It is a central contention of dependency theory that poor states are impoverished and
rich ones enriched by the way poor states are integrated into the "world system.
The basic principle of the 'Core-Periphery' theory is that as general prosperity grows worldwide,
the majority of that growth is enjoyed by a 'core' region of wealthy countries despite being severely
outnumbered in population by those in a 'periphery' that are ignored.
Gini index - is a measure of statistical dispersion intended to represent the income distribution of a
nation's residents, and is the most commonly used measure of inequality
Goods in international trade are divided in two groups
Standardized goods (mass), homogeneous character: primary commodities (wheat), crude
materials, semi-finished products
Individualized goods (industrial): heterogeneous character, manufactured goods, individual
commodities
Demand
The most important demand side determinants are:
Substitution (the availability of acceptable alternative materials at cheaper cost).
Conservation (the ability to redesign products and production processes to use less of an
expensive raw material).
Redesign and retooling (high upfront costs to re-engineer products and processes deter
substitution until consumers are quite sure price increases are permanent; but once costs are
incurred, consumers are very unlikely to return to the previous expensive raw material unless its
price falls significantly)
New technologies (which change demand patterns in a profound way so the past is not
necessarily a guide to the future - as with the emergence of fuel cells, bioethanol and mobile
communications).
Suppy
The lower boundary of the price band is fixed by supply side fundamentals, of-which the most
important are:
Costs (for extraction, refining and transportation). Required rate of return for investors
(including the cost of equity and debt, and target return to shareholders for risk).
Industry concentration (competitive markets with no pricing power usually result in higher
output and lower prices than more concentrated markets where producers are able to restrict
output and raise prices).

20

 Management behavior (traditional mining and oilfield engineers focused on costs, processes
and output; a new generation of MBA-trained financiers is more likely to focus on pricing,
marketing and profitability).

HDI - Human development index

1. Norway
2. Switzerland
DC - Developed country
NCI - Newly industrialized country
RIC - Russia India and China
BRICS - Brazil, Russia, India, China, South Africa
MEDC - Middle economically developed country
LEDC - Less economically developed country
LDC - Least developed countries
FCC - Former communist countries

Balance of Payments Accounting

Definition: The balance of payments is a record of transactions between residents of a country and
residents of the rest of the world.
The government system for analyzing this is the Balance of Payments (BOP)
Balance of Payments Accounts:
The Current Account
The Capital Account
Statistical Discrepancy
Official Reserves Account
BOP records all the transactions that create demand for and supply of a currency.
This indicates demand-supply equation of the currency. This can drive changes in exchange rate of
the currency with other currencies.
BOP may confirm trend in economys international trade and exchange rate of the currency. This
may also indicate change or reversal in the trend.
This may indicate policy shift of the monetary authority of the country.
The BOP summaries international transactions for a specific period, usually a year, and is
prepared in a single currency, typically the domestic currency for the country concerned.
The BOP is maintained on a double-entry bookkeeping system
Every international transaction automatically enters the balance of payments twice: once as a
credit (+) and once as a debit (-).
Assets - are economic resources which are expected to benefit future activities.

21

Liabilities - are outsiders claims against assets.

Credit - this means right.
Debit - this means left.
Current Account (CA)
The Current Account is a record of transactions affecting the left-hand side of the budget
constraint.
It is a measure of the change in a countrys net worth.
It is a record of trade in goods in services (including the services of capital and labour) and gifts.
Includes all imports and exports of goods and services.
Includes unilateral transfers of foreign aid.
If the debits exceed the credits, then a country is running a trade deficit.
If the credits exceed the debits, then a country is running a trade surplus.

Current Account
Merchandise trade - This is trade in physical goods such as computers and automobiles.
Services - This is trade in invisible or intangible goods.
Income - These are one-sided transactions such as government grants, pension payments, and
private gifts.
Current Transfers
How do you fix a country with a large CA deficit?
Encouraging people to buy local product
Attempt to devaluate currency to make imported products more expensive and exports more
attractive to overseas buyer
Broader expenditure reduction policies reducing aggregate demand
Capital Account
Sale and purchase of capital assets and non- produced or non-financial assets.
The Financial Account
This is the right-hand side of the governments budget constraint.
The financial account is a record of capital flows between residents of a country and the rest of
the world.
One way to break down capital flows is by the type of transaction.
There are two main types of capital flows:
1. Direct investment: When residents of a country acquire shares in a foreign business with the
intent of exercising management control. This is typically defined as purchasing 10 percent of a
firms stock.
2. Portfolio investment: Investment without the intention of exercising management control.
Statistical Discrepancy (variance)
Theres going to be some omissions and mis-recorded transactionsso we use a plug figure to
get things to balance.

22

Errors and Omissions

Each transaction is entered once as a debit and once as a credit; that is, once as a positive
number and once as the same negative number.
So, all of the transactions should sum to zero. In practice, it does not work out that way.
Data on merchandise trade comes from customs declarations.
Trade in services is typically estimated by various sampling techniques; errors can be
substantial.
Reporting of capital flows and investment income is highly imperfect; people try to hide these to
evade taxes.
The Statistical Discrepancy or Errors and Omissions is the amount we need to add or subtract to
make things add up to zero.

The Official Reserve Account

The reserve account is a record of changes in the home countrys official (government) assets.
When fixed exchange rates were more prevalent this used to be separate from the financial
account.
Official reserves assets include gold, foreign currencies, SDRs, reserve positions in the IMF.

Negative balance (debit, increase in an asset): Reserves rose.

Positive balance (credit, decrease in an asset): Reserves fell.
Another definition of the balance of payments is minus one times the reserve account balance.
A positive (negative) balance of payments: reserves rose (fell)

The Balance of Payments Identity

BCA + BKA + BRA = O
where
BCA = balance on current account
BKA = balance on capital account
BRA = balance on the reserves account
Under a pure flexible exchange rate regime, BCA + BKA = O
Balance of Payments Trends
Germany traditionally had current account surpluses.
Since 1991 Germany has been experiencing current account deficits.
This is largely due to German reunification and the resultant need to absorb more output
domestically to rebuild the former East Germany.
What matters is the nature and causes of the disequilibrium.
Summary
All transactions between a country and the rest of the world are recorded in its balance of
payments accounts.
The current account equals the countrys net lending to foreigners.
National saving equals domestic investment plus the current account.

23

 Transactions involving goods and services appear in the current account of the balance of
payments, while international sales or purchases of assets appear in the financial account.
Any current account deficit must be matched by an equal surplus in the other two accounts of the
balance of payments, and any current account surplus by a deficit somewhere else.
International asset transactions carried out by central banks are included in the financial account.

Poverty defined as whether households or individuals have enough resources or abilities today
to meet their needs;
Inequality in the distribution of income, consumption or other attributes across the population;
Vulnerability, defined as the probability or risk today of being in poverty or falling deeper into
poverty in the future.
Measuring the GAP
Measurements require data
Data is based on the formal economy
Ignores much unpaid, subsistence and informal work
Two indicators are commonly used:
- GNI
- GDP
GDP
Gross Domestic Product
Value of goods and services produced in a country over a year.
Divided by the population to give a per capita value which is converted to US$ to enable
comparisons
GNI
Gross National Income
Like GDP but also includes income from overseas investments. As such is a better measure than
GDP
Like GDP it is given as a per capita value
The Human Development Index (HDI)
Composite index that measures a countrys average achievements in three basic aspects of
human development: health, knowledge, and a decent standard of living
Health is measured by life expectancy at birth
Knowledge is measured by a combination of the adult literacy rate and the combined primary,
secondary and tertiary gross enrollment ratio
Standard of living - by GDP per capita (PPP US$)

24

1. Linders overlapping product ranges theory

a. An entrepreneur gains success and market share at home and then expands to foreign
markets
b. Explains that trade in manufactured goods is dictated by similarity in product demand across
countries
c. Focuses on the demand side
d. All above is true
2. Among fathers of International Economics were:
a. Heckscher & Ohlin
b. Leontief
c. Hume (krugman, introduction s.1)
d. Non of above mentioned
3. Central points of the Posner Theory:
a. The imitation lag includes a learning period to acquire technology and know-how product
b. The imitation lag is defined as the length of time that elapses between the product is
being produced in country I and the own version of this product in country II
c. Assumes that the same technology is available in all countries
d. A continually successful exporter/country is not often innovating
4. If the limitation lag is ten month and the demand lag is three months (the Posner) then
the net lag is:
a. 13 months
b. 7 months
c. Minus 10 months
d. 1 month (after innovation is introduced
5. Trade implications of the product cycle shows that (Vernons theory):
a. In Maturing Product Stage production capability expands rapidly to Less Developed
Countries
b. In early stage there is the only country producing and consuming the product and
highly capital-intensive and skilled-intensive
25

c. In Standardized Product Stage comparative advantage of production and export move

Advanced Countries
d. All above is true

6. Individual countries can try to meet the consumption needs of their citizens without trade by
producing everything their population need. Alternatively, they can specialize in the production of a
few commodities and (resign of/ trade for) commodities they do not produce. Even if there were no
differences between countries, specializing and trading would still make sense if there were
important economies of (size / scale) in production. And even if there was no advantage to largescale production, countries could still benefit from trade as long as tastes and preferences (differed /
were the same).
7. If a country imports steel, then the imposition of a tariff on steel
a. would have the same efficiency effects as the imposition of a quota on steel input
b. will necessarily lead to reduced domestic supply of steel as higher steel prices production
c. will reduce the volume of steel products
d. is likely to reduce the volume of exports in general if foreigner retaliate by import quotas of their
own.
8. Many countries do not have unrestricted free trade. Rather tariffs and (subsidies/NTBs) are often
imposed to restrict (exports/imports) and export (quotas/subsidies) are often used to promote
exports. Tariffs reduce the quantity of exports by raising their (volume/price), while quotas
decrease the (price/volume) of imports by limiting their (size/quantity). Either a tariff on VERs
be used to achieve the same reduction in imports, but the WTO now suggest using (tariffs/VERs) as
the only acceptable trade measures.
9. Traditional justifications for trade restriction include the (import-substituting/exportsubstituting) industrialization argument and the (adult/infant) industrialization argument and the
______-industri (adult / infant) argument. In the high performance Asian economies it often
includes (export-oriented industrialization/coping with economic dualism) argument.

10. Strong relationships between the sizes of the countrys economy

a. trade between any two economies is larger, the smaller is either economy
b. trade between any two countries is, other things equal, inversely proportional to .. GDPs
and diminishes with distance (proportional) gravity model
c. determine the volume of trade between 2 countries: size of their GDPs ()
d. between countries (inversely proportionally)
26

11 The composition of world merchandise exports, 2013 (%)

a. Manufactured goods ____________67________
b. Fuels and mining products ________21______________
c. Agricultural products ____________12________
12 Shares of some regions in world merchandise exports, 2013 (%)
a. Europe _______________________ 36,3
b. Asia _________________________ 31,5
c. North America _____________________13,2
13 Shares of some regional trade flows in intra-regional merchandise exports, 2013 (%)
a. North America with North America ______________ 49,2
b. Europe with Europe __________ 68,6
c. Asia with Asia ______________ 53,2
14. Leading exporters and importers in world merchandise trade, 2013
Exports
Imports
a.____China____
a.____USA____
b._____USA___
b.____China____
c.___Germany____
c.___ Germany____
15. Leading exporter and importer in world trade in commercial services, 2013
Exports: _______ USA Imports:__________ USA
16. Countries specialize and trade
a. Due to difference in resources and/or in technology
b. Due to economies of scale specialization in limited range of goods and services.
c. It is defined as international division of labor
d. All above is true
17. Europes Common Agricultural Policy was built upon:
a. Countervailing levies responding to system of high prices guaranteed to farmers
b. Policy of subsidizing exports to dispose of surplus production
c. The support prices resulting in obligation to buy and store food
27

d. All above is true

18. Among trade instruments are:
a. National procurement: governments are directed towards domestically produced goods
even more expensive than imports
b. Red-tape barriers: all normal health, safety, and customs procedures are substantial
obstacle in way of trade
c. Advance deposit requirement: import license is issued only after importer has given a
deposit to a bank
d. None of above is true
19. Effective Rate of Protection vv. Nominal Rate of Protection
a. tariffs may have different effects on different stages of production of goods.
b. 30 percent tariff on imported shoes may provide domestic producers.percent or more
c. Nominal rate of protection is equal to effective rate
d. .policies aimed at promoting economic development never lead.protection much higher
than the tariff rates themselves
20. Dual economy
a. Two different types of economies on markedly different levels in which exist in one
country
b. Quite common in less developed countries
c. Co-existing economies while the first sector is directed and the other caters to the
demands of the international
d. All above is true
21. Protectionism is
a. Due to collective action of industry (.
b. Instead large subsidy payments increasing..
c. Against adoption of policies that serve the..
d. To avoid a trade war
22. What is the most common company size in Finland (?)
a. More than 50 employees
28

b. 20-40 employees
c. Less than 10 employees
23. In Finland power distance is
a. High
b. Low
c.
24. Which of the following theory fits this sentence MEDCs keep LEDCs poor as they owe
debt repayments. TNCs main source income (from MEDCs) power keep labour costs cheap
and threat of withdrawal
a. Modernization theory
b. Dependency theory
c. Poverty cycle
d. Core-periphery model
25. Most of the consumption Gini indexes range from
a. 20 to 50
b. 70 to 100
c. 25 to 55
d. 30 to 60
26. World prices are only price of
a. Transaction realized on properly big international markets
b. Including majority operation, transaction accounted in convertible currencies
c. Transaction proceed occasionally and including exclusive operation
d. Transaction accounted in convertible currencies and proceed occasionally
27. The ability to redesign products and production processes to use less of inexpensive raw
material is called
a. Substitution
b. New technology
c. Conservation
29

d. Redesign and retooling

28. Between 1900-2002 we noticed ____________TOT of the price of primary commodities
relative to manufactures TOT- export/import*100%
a. Positive
b. Negative?? (na wykresie spade..)
c. Stable
29. Commodity prices have shown spectacular increases since the ______________1. Most of
the increases were directly or indirectly linked to higher ______________2 and increased
demand for ___________________3.
a. 1 summer of 2005
b. 1 summer of 2007

2 metal 3 oil prices

2 oil prices

c. 1 winter of 2005

2 food

d. 1 winter of 2007

2 oil prices

3 biofuels

3 energy
3 metal

30. A short term BoPs deficit is not a problem, but if you have a deficit of over ________ then
it is a problem if you rely on Capital flows.
a. 3% of GDP
b. 6% of GDP
c. 10% of GDP
d. 9% of GDP
31 World Bank figures show that those in the least developed countries only save
___________1 of their income compared to ___________2 in the most developed countries.
a. 1 10 %

2 25%

b. 1 10%

2 50%

c. 1 5%

2 20%

d. 1

2 25%

50%

32. The probability or risk of being in poverty falling deeper into poverty in the future is
called
a. Inequality
b. Poverty
30

c. Vulnerability
d. Survivability
33. Range of goods evaluated in world prices is ????????????
a. Narrower than range of goods produced in all states of the world
b. Wider than range of goods produced in all states of the world
c. The same than range of goods produced in all states of the world
d. Very small
34. Havana cigar is an _____________1 and IBM computer is _____________2
a. 1 standardized good

2 individualized good

b. 1 individualized good

2 individualized good

c. 1 non-trade good
d. 1 mass good

2 standardized good

2 individualized good

35. Prices of standardized goods in the short-term are

a. Defined by supply but not by demand
b. More stable than prices of individualized goods
c. Less stable than prices od individualized goods
d. Dominated by fundamental factors
36. If a country has a comparative advantage, then the domestic price will be below the world
price, and the country will be:
a. An importer of the good
b. An exporter of the good
c. Monopolist
d. Debtor
37. The haves at global scale represent _______ of people who consume ___________ of all
resources
a. The richest 30%
b. The richest 20%
c. The richest 40%

around 70%
around 80%
around 60%
31

d. The richest 10%

around 90%

38. The LEDC countries have the worst income distribution, with ______1 of their countrys
people surviving on __________2 of income, whilst a wealthy elite ____________3 gets around
__________4 of national income
a. 1

20% 2 5-6%

3 10% 4 30%

b. 1

50% 2 1-2%

3 20%

c. 1 10%

2 1-2%

d. 1 10%

2 1-2%

3 10%
3 50%

4 25%
4 40%
4 30%

39. Fair Trade is

a. A cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran
b. An international organization designed by its founders to supervise and liberalize
international trade
c. A carbonated soft drink ;)
d. Fair trade is a social movement whose stated goal is to help producers in developing
countries achieve better trading conditions and to promote sustainability.

TRUE OR FALSE
1. Tariff quota means that imports entering the market within quota will face lower . higher
duties will be applied to products imported outside the quota T
2. A specific tariff on shirts would reduce the volume of imported shirts by specifying the
quantity of shirts that can be imported F
3. A quota restriction will create a wedge between the domestic and world prices that reduces
the potential gains from trade T
4. Countervailing duties are imposed to offset a subsidy given to the producer of the imported
good T
5. An economy with a high ratio of land to labour will be relatively better at producing.
Economy with a low ratio of labour to land T
6. Local content requirements is a regulation that requires that some specific fraction of a final
good be produced domestically T
7. Countrys balance of payments is seldom placed within economic analysis context
(international capital flows, national accounts, monetary policy) F
32

8. A case when an agricultural country may make use of outdated farming methods to generate
its own food supply while a huge portion of the land is used by large international
corporation to farm crops for export, using the most advanced technology corporation, can
be termed dualism in economy T
9. Money spent by foreign tourists are BOP receipts T
10. New overseas investments are BOP receipts T
11. If exports exceed imports, The Balance of Trade is negative F
12. Negative BOP (debit, increase in an assets) means that reserves rose T
13. U.S. residents spend about $24 billion on imports from Scandinavian nations each.T
14. In 2009, 12 billion of the EU budget (totaling 133.8 billion) went on projects to
competitiveness T
15. In Finland anyone is free to practice a trade of start a business T
16. According to the Global Competitiveness Report 2010-2011, Singapore leads the most
competitive economy in the world F
17. Prices of standardized goods are more stable than prices of individualized goods F
18. Protection policy of countries is deforming the equilibrium world price T
19. Not each price deserves name of world price in international trade T
20. Price affects incomes of companies, as incomes depend on level and dynamics of .T

33