Trade Barriers

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Trade Barriers For centuries, governments have used tariffs and quotas to raise revenues and influence the development of individual industries. Since the eighteenth century-when the British Parliament attempted to impose tariffs on tea, sugar, and other commodities on its American colonies-tariff policy has proved fertile soil for revolution and political struggle . We can use supply-and-demand analysis to understand the economic effects of […]

Free Trade

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Free Trade Next, open lip trade in clothing. In the absence of transport costs, tariffs, and quotas, the price in America must be equal to the world price. Because if the American price were above the European price. sharp-eyed entrepreneurs would buy where I clothing was cheap (Europe) and sell where clothing was expensive (America); Europe would therefore export clothing […]

No Trade Equilibrium

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No Trade Equilibrium Suppose that transportation costs or tariffs for clothing were prohibitive (say.$100 per unit of clothing). Where would the no-trade equilibrium lie? In this case, the American market for clothing would be at the intersection of domestic supply and demand, shown at point N in Figure 15-7.At this no-trade point. prices would be relatively high at S8 It, and domestic […]

SUPPLY AND DEMAND ANALYSIS OF TRADE AND TARIFFS

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SUPPLY AND DEMAND ANALYSIS OF TRADE AND TARIFFS Free Trade vs. No Trade The theory of comparative advantage can be illuminated through the analysis of supply and demand for goods in foreign, trade. Consider the clothing market in America. Assume. for simplicity, t!tat America is a small part of the market and therefore cannot affect the world price of clothing. […]

C. PROTECTIONISM

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C. PROTECTIONISM Go hack to the chapter and reread the “Petition of the Candle Makers.” written by the French economist Frederic to satirize solemn proposals to prod’ct domestic goods from imports. To foreign competition with suspicion. and campaigns to “Buy  pat Yet economists since the time of Adam Smith have marched to a different drummer. Economists generally believe that free trade promotes […]

QUALIFICATIONS AND CONCLUSIONS

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QUALIFICATIONS AND CONCLUSIONS We have now completed our look at the elegant theory of comparative advantage. Its conclusions apply for any number of countries and commodities. Moreover. it can be generalized to handle many inputs. changing factor proportions. and diminishing returns. But we cannot conclude without noting two important qualifications to this elegant theory: l. Classical assumptions. From a theoretical point of view, […]

Triangular and Multilateral Trade

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Triangular and Multilateral Trade With many countries brought into the picture, it will generally be beneficial to engage in triangular multilateral trade with many other countries. Bilateral trade between two countries is generally unbalanced. Consider the simple example of triangular trade flows presented in Figure 15-6. where the arrows show the direction of exports. America buys consumer electronics from japan buys oil […]

Many Countries

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Many Countries  What about the case of many countries? Introducing many countries need not change our analysis. As far as a single country is concerned. all the other nations can be lumped together into one group as “the rest of the world.” The advantages of trade have no special relationship to national boundaries. The principles already developed apply between groups of countries […]

Many Commodities

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Many Commodities When two regions or countries produce many commodities at constant costs, the goods can be arranged in order according to the comparative advantage or cost of each. For example. the commodities might be aircraft, computers. wheat, automobiles. wine, and apparel-all arranged in the comparative-advantage sequence shown in Figure IS-5. As you can from tile figure. of all the commodities. […]