...Globalization and Economic Interdependence: 1. What does globalization mean? Globalization is the acceleration and extension of the interdependence of economic and business activities across national boundaries, in other words a development on one side of the globe will have consequences on another. As a consumer, it means more choices, generally lower prices, and increasingly blurred national identity for products and services. How do the statistics of world trade and direct investment show the trend of globalization? Globalization allows for countries to expand outside of their own country for resources. With this being done, more and more countries are able to interact in world trade and direct investment, which correlate to the trend of globalization increasing. 2. What are the main drivers of globalization? Accelerated technological change, liberation of trade and investment and investment in many countries, and entrepreneurship and competition among firms (location economies, economies of scale, and economies of scope). How do location economies, economies of scale and economies of scope motivate firms to expand their operations overseas? Location economies refer to the cost efficiencies that a firm can achieve by locating some of its activities overseas. Such cost efficiencies can result from lower labor or raw material costs, superior labor skills, or elimination of transport or tariff costs. Economies of scale refer to the reduction of average production costs due...
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...CHAPTER 5 NONTARIFF TRADE BARRIERS MULTIPLE-CHOICE QUESTIONS 1. THE IMPOSITION OF A TARIFF ON IMPORTED STEEL FOR THE HOME COUNTRY RESULTS IN: a. Improving terms of trade and rising volume of trade b. Higher steel prices and falling steel consumption c. Lower profits for domestic steel companies d. Higher unemployment for domestic steel workers 2. Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition? a. Orderly marketing agreement b. Local content requirements c. Import quota d. Trigger price mechanism 3. Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an export quota on its automakers. The largest share of the export quota’s “revenue effect” would tend to be captured by: a. The U.S. government b. Japanese automakers c. American auto consumers d. American autoworkers 4. Suppose the government grants a subsidy to domestic producers of an import-competing good. The subsidy tends to result in deadweight losses for the domestic economy in the form of the: a. Consumption effect b. Redistribution effect c. Revenue effect d. Protective effect 5. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies. This is because, unlike domestic subsidies, import tariffs...
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...International Trade and Stimulation Univerisity of Phoenix Angela Rogers September 2, 2012 The simulation has provide reasons for international trade and helped me to determine which countries that we should trade with, what type of products we should import or export. I will also be able to determine when we should impose trade regulations such as tariffs and quotas. If our country should buy or sell any type of goods or services this is considered trading. International trading is considered really controversial while domestic trading does not have as many problems as international trading seem to have. If you should purchase items that are foreign made products the prices are lower and the quality of the product is better than an item that made in the United States. The practice of internationally trading has caused some companies within the United States to go out of business. This means that the employees that work at the companies will lose their jobs because of businesses closing in the United States. If you should ask most Americans they are in favor of keeping jobs in the United States instead of the jobs going overseas. This means that Americans are in favor of reducing international trading and buying American made products. The change in government policy, inexpensive communication and shipping has increased due to the results of international trading. Governments have changed policies that effect international trading by lowering...
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...International Trade Simulation and Report Team B: Kimberly Castillo, Tanya Bell, Elijah B. Gowdy, Derrick Brown ECO/212 June 6, 2012 Instructor, John Holmberg One Advantage and One Limitation of International Trade Advantage and limitation of International Trade, Countries have different quantities, qualities, and cost for resources such as land, labor, capital, and entrepreneurship (University of Phoenix, 2009). International trade is the import and export of these resources between countries. International trade allows countries to distribute their resources more efficiently. Importing and exporting of resources is vital to the economy. A gain from International trading is a price increase or decrease, in the local markets. If it is cheaper to make a good and export the good the importer will gain from trade by getting a good at a better price than what the opportunity cost of it would be. If the market price was higher, a lower price exporter will allow market price to fall and pose a benefit for consumers, in the sense that everyone gains the most with minimal losses in the short run. Four Key Points Emphasized in the Simulation Within the simulation team b has identified four key points that were underlined. First there is what is called dumping. Dumping is the selling of goods and products in other countries at a cost that is lower than the cost of those goods and products in its own country. Another key point identified in the simulation...
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...Understanding the Economics Standards for teachers in grades 9–12 Economics studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy wants. This fundamental economic concept of scarcity is at the core of the discipline. There are never enough natural resources, human resources, or capital resources (man-made goods such as tools, equipment, machinery, factories) to produce everything society wants. Therefore, choices must be made on what to produce, how to produce, and for whom to produce. Choices must also be made at a personal level. There never seems to be enough money or time to have or to do everything one wants. Economics is a way of thinking, a science of making choices. Economists examine the decision-making processes of individuals, businesses, markets, governments, and economies as a whole. An understanding of economic principles helps people to: • Consider not only the short-term effects of a decision, but also its long-term effects and possible unintended consequences; • See the connections between personal self-interest and societal goals in order to understand how individual and social choices are made in the context of an economy; • Analyze how social goals, such as freedom, efficiency, and equity, impact public policies. Because of increasing interdependence and globalization, everyone in the United States needs to be aware of the issues in the global economy, their role in that system, and be able...
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...WHAT IS GLOBAL/INTERNATIONAL TRADE? Global trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), it’s economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries...
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...subsidizing its own farming enterprises. Rich countries dump subsidized produce on developing countries, driving down the price of local produce - with devastating effects on the local economy. This unbalanced playing field has made many poor farmers even poorer, or forced them off their land completely. Definition of 'Anti-Dumping Duty' A protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. In the United States, anti-dumping duties are imposed by the Department of Commerce and often exceed 100%. They come into play when a foreign company is selling an item significantly below the price at which it is being produced. The logic behind anti-dumping duties is to save domestic jobs, although critics argue that this leads to higher prices for domestic consumers and reduces the competitiveness of domestic companies producing similar goods. Investopedia explains 'Anti-Dumping Duty' Some people believe that a foreign company will even lower the price of the product it is “dumping” below its own cost to manufacture the good in order to drive domestic competitors out of business and later raise prices. Even when a foreign company sells its exports at the same or a higher price than they sell for in the company's home country, the importing country can decide that the exporter is guilty of “dumping” and impose an anti-dumping duty. Anti-dumping duties are believed to distort the market because the government cannot...
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...CHAPTER 1 INTRODUCTION Chapter 1 emphasizes the internationalization of business and economic activity that has occurred since the end of World War II. Although international business activities have existed for centuries, primarily in the form of exporting and importing, it is only in the postwar period that multinational firms have become preeminent. The distinguishing characteristic of the MNC is its emphasis on global, rather than affiliate, performance. Specifically, MNCs ask, "Where in the world should we build our plants, sell our products, raise capital, and hire personnel?" Thus the true multinational is characterized more by attitude than the physical reality of an integrated system of marketing and production activities worldwide. It involves looking beyond the boundaries of the home country, and treating the world as "our oyster." Good examples include the globalization of GE's medical systems division and Arco Chemical. After stimulating student interest with this vision of the MNC, I then introduce the financial decisions that multinationals must make. I begin by discussing the key concepts and lessons from domestic finance that apply directly to international corporate finance. The lessons include the emphasis on cash flow rather than accounting earnings, the time value of money, the importance of taxes, and the unwillingness of investors to reward companies for activities (like corporate diversification) which investors could replicate for themselves at...
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...of overall trading patterns. This is because in order to focus in on a few questions we have to make tons of simplifying assumptions. One of those assumptions is the economist’s favorite ceteris paribus (“other things being equal”), which is the convenient assumption that we can look at changes in one market while assuming that everything else in our economy is not changing. (Note for example that in Ricardian trade theory we do assume that one market affects another, when productive factors from one industry move into another industry.) We also bring over a lot of other simplifying assumptions from neoclassical micro, such as the assumption of perfect competition in domestic industry. So beware: these are starkly oversimplified models that are useful because they help us think about issues. But be careful about naively using the results from a model as a guide to policy. The core intuition of this theory, which is similar to that of the broader trade theory we examined earlier, is that restrictions on trade move the global economy farther away from an ideal international general equilibrium in which everyone buys or sells at the same set of prices. In neoclassical theory, this one global set of prices would guide efficient use of resources. A Tariff in a Small Country A tariff is a...
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...International Trade and Finance Speech ECO/372 September 23, 2013 International Trade and Finance Speech According to (Colander, 2010, p. 505) a surplus means when a country “produces more than what it consumes.” “Countries that enjoy a trade surplus have more money flowing in than out. This includes both money for the products the country exports and the money spent by foreign visitors” (Wisegeek, 2013, p. 1). The effect of trade surplus in a nation indicates it has more control over its own currency. In some ways the United States and Japan are major competitors in the market of international trade (Encyclopedia of Nations, 2013). Each, country produces many of the same goods, for example Toshiba’s major competitor in personal computers is Dell (Dell computer corporation, 1997). Toshiba is a product Japan imports to the United States. A surplus would be created, depending on the current interest and exchange rate in the United States. After the emergence of the World Trade Organization, and according to their site (WTO, 2013) is designed to “deal with the global rules of trade between nations. Its main function is to ensure that trade flows smoothly, predictably, and as freely as possible.” From inception the volume of international trade has increased and participating countries actively trade to push their product. The intent of this speech will be to explain what happens during a surplus of imports into the United States, the effects of international trade to gross...
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...International Economics, 9e (Krugman et al.) Chapter 9 The Instruments of Trade Policy 9.1 Basic Tariff Analysis 1) Specific tariffs are A) import taxes stated in specific legal statutes. B) import taxes calculated as a fixed charge for each unit of imported goods. C) import taxes calculated as a fraction of the value of the imported goods. D) the same as import quotas. E) import taxes calculated based solely on the origin country. Answer: B Page Ref: 192-198 Difficulty: Easy Question Status: New AACSB Codes: Dynamics of the Global Economy 2) Ad valorem tariffs are A) import taxes stated in ads in industry publications. B) import taxes calculated as a fixed charge for each unit of imported goods. C) import taxes calculated as a fraction of the value of the imported goods. D) the same as import quotas. E) import taxes calculated solely on the origin country. Answer: C Page Ref: 192 Difficulty: Easy Question Status: New AACSB Codes: Dynamics of the Global Economy 3) The excess supply curve of a product we (H) import from foreign countries (F) increases as A) excess demand of country H increases. B) excess demand of country F increases. C) excess supply of country H increases. D) excess supply of country F increases. E) excess supply of country F decreases. Answer: D Page Ref: 192-198 Difficulty: Easy Question Status: New AACSB Codes: Dynamics of the Global Economy 4) Suppose the United States eliminates its tariff on...
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...What defines marginal utility? the gain (or loss) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility [ than the second and subsequent units. Marginal cost: the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. [1] What will happen according to the law of diminishing marginal utility upon acquiring an additional unit of a product? Consumer satisfaction declines. The law of diminishing marginal utility is at the heart of the explanation of numerous economic phenomena, including time preference and the value of goods... The law says, first, that the marginal utility of each (homogenous) unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). What is defined as an increase in total production expense resulting from one more unit of output? Marginal Cost What is a change to the total revenue resulting from the sale of one more unit of output in a perfectly competitive firm? Marginal Revenue Which economic principle describes the imbalance between what people want and what can be produced? Scarcity ***If a company decided to make more of A it must make less...
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...ECONOMIC INTEGRATION COMPARTIBILITY WITH FREE TRADE POLICY. This discussion focusses on how particular types of commodity programs are affected by opening up international markets.the impacts of policies such as price supports, marketing quotas and direct payment programs may be affected by free trade. In this discussion i analyze the effects of a free trade agreement on welfare, budget costs, and other policy objectives under a variety of stylized commodity programs (as in McCalla and Josling, 1985). These programs are examined using a series of figures that illustrate the economic impact of free trade on a country that has a particular commodity program in place. Commodity program cases considered are: (1) a production subsidy which is sufficient to exclude imports; (2) a production subsidy under which some imports flow under free trade; (3) a price support; (4) a production quota which is held fixed in response to imports; (5) a production quota which is adjusted when free trade is introduced; and (6) direct payments unrelated to current output. In each figure i show only two countries; the country with the domestic policy upon which i focus is labeled "home", the other country is labeled "foreign". For simplicity, i examine cases in which there is no trade initially and only the home country has an internal commodity...
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...CGGGG The Political Economy of International Trade Chapter Outline OPENING CASE: Why Are Global Food Prices Soaring? INTRODUCTION INSTRUMENTS OF TRADE POLICY Tariffs Subsides Country Focus: Subsidized Wheat Production in Japan Import Quotas and Voluntary Export Restraints Local Content Requirements Administrative Polices Antidumping Policies Management Focus: U.S. Magnesium Seeks Protection THE CASE FOR GOVERNMENT INTERVENTION Political Arguments for Intervention Country Focus: Trade in Hormone-Treated Beef Economic Arguments for Intervention THE REVISED CASE FOR FREE TRADE Retaliation and Trade War Domestic Politics DEVELOPMENT OF THE WORLD TRADING SYSTEM From Smith to the Great Depression 1947-1979: GATT, Trade Liberalization, and Economic Growth 1980-1993: Protectionist Trends The Uruguay Round and the World Trade Organization WTO: Experience to Date The Future of the WTO: Unresolved Issues and the Doha Round Country Focus: Estimating the Gains from Trade for America FOCUS ON MANAGERIAL IMPLICATIONS Trade Barriers and Firm Strategy Policy Implications SUMMARY CRITICAL THINKING AND DISCUSSION QUESTIONS CLOSING CASE: Agricultural Subsidies Learning Objectives 1. Describe the policy instruments used by governments to influence international trade flows. 2. Understand why governments...
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...internally. While free trade is a condition where a nation removes barriers to allow for international trade ( Ethier 2008). In Australia the banana industry is heavily protected by a "zero import" ban on imports of banana, creating a condition that benefits the producers more than the consumers. Producer surplus is defined as the minimum amount that they are willing to accept for a good, the difference between the actual and minimum they receive is the benefit the producer receives. On the other hand consumer surplus is the minimum amount they are willing to pay for a good or service relative to the market price, the difference between the what the consumer is willing to pay and the market price is how it occurs (Hubbard et al. 2010, 131-133). The figure below (Fig 1) illustrates the Australian banana market in autarky and free trade positions and show how an increase in consumer surplus occurs under free trade position and how producer surplus decreases. Price of bananas ($/kg) Domestic Supply, DS e a b World Price QS QA QD d A P 1 f P 2 D B Imports Domestic Demand, DD 0 Quantity of bananas (kg) Fig 1: Supply-demand diagram in autarky and free-trade positions Exposing the Australian banana industry to free trade economy will mean a lift on the ban for banana imports. Under autarky the economy is at equilibrium point A with price P1 and quantity Qs. At point A, consumer surplus is equivalent to a+d=$585m while producer surplus is b+e+f=$135...
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