Economics Monopoly, Trade

1. International Trade

• Who is the largest trade partner of the U.S.?

o Canada

• Illustrating the gains from trade

o Benefits are it promotes efficiency, promotes competition, satisfies more individual wants and makes for a more peaceful world, it provides lower prices and larger quantity of goods from which to choose

o Understand comparative advantage

 Ability of a country to produce a good at a lower opportunity cost than another country. Explains how/why nation’s trade and it is a comparison of domestic opportunity costs. World output and consumption are maximized when each country specializes in producing goods for which it’s a comparative advantage.

o Terms of trade

 Free trade is flow of goods between countries without restrictions or special taxes. Advantages are increased production, production efficiencies of resource allocation, benefits to consumers being able to obtain a greater variety of goods and services, foreign exchange rates, employment, economic growth. Disadvantages are structural unemployment, new industries find it difficult to become established in competitive environment, pollution, and pressure to increase protection

o Trade & production possibilities

 When countries specialize, total world output increases & potential for greater total world consumption also increases. Global trade allows a country to consume a combination of goods that exceeds its production possibilities curve.

• Barriers to trade:

o Embargoes

 Strongest limit on trade. An embargo is a law that bars trade with another country.

o Tariffs

 Tax on an import, also called custom duties. A tariff can be based on weight, volume, or number of units. Causes decline in domestic consumption and increase in domestic production, decline in imports, tariff revenue. Tariffs are imposed to reduce imports by raising import prices & to generate revenues for U.S. Treasury.

o Quotas

 A limit on the quantity of a good that may be imported in a given time period...