2.8 International Trade and Public Policy

• What is the primary role of international trade in the global economy?

  Enhances efficiency and promotes growth
• International trade fosters economic growth by allowing nations to specialize in their most efficient industries
• Comparative advantage is determined by absolute productivity rather than opportunity cost.

  False
• What is the fundamental driver of international trade according to the study material?

  Comparative advantage
• In the example provided, Country A can produce 10 wheat or 20 textiles, meaning one unit of wheat costs 2 textiles.
• In the example, neither country has a comparative advantage in wheat or textiles.
• What are the two primary benefits of international trade for consumers?

  Increased choice and lower prices
• Match the benefit of international trade with the corresponding beneficiary.

  1️⃣ Increased product variety

  2️⃣ Expanded markets

  3️⃣ Lower prices
• International trade leads to a more competitive and efficient global economy.
• What does comparative advantage refer to in the context of international trade?

  Lower opportunity cost
• In Country A, producing 1 unit of wheat costs 2 textiles.
• Which of the following is a benefit of international trade for consumers?

  Lower prices
• Economies of scale reduce costs and improve profitability for producers in international trade.
• What is the purpose of trade barriers such as tariffs, quotas, and embargoes?

  Restrict or control trade
• Tariffs are taxes imposed on imported goods, increasing their cost.
• Match the type of trade barrier with its definition.

  Tariffs ↔️ Taxes on imported goods

  Quotas ↔️ Quantitative limits on imports

  Embargoes ↔️ Complete trade bans
• Consumers gain from increased product variety and lower prices
• What is the primary purpose of trade barriers?

  Restrict international trade
• The WTO oversees global trade rules and resolves disputes.
• The U.S.-Mexico-Canada Agreement replaced the NAFTA
• International trade enhances efficiency and promotes economic growth worldwide.
• What is the opportunity cost for Country A to produce one unit of wheat?

  2 textiles
• Neither Country A nor Country B has a comparative advantage in wheat or textiles because their opportunity costs are the same.
• Consumers benefit from lower prices due to foreign competition
• What is the overall effect of international trade on the global economy?

  More competitive and efficient
• Match the trade barrier with its purpose:

  Tariffs ↔️ Protect domestic industries

  Quotas ↔️ Reduce foreign competition

  Embargoes ↔️ Apply political or economic pressure
• Trade barriers are measures governments implement to restrict or control international trade
• What are tariffs in international trade?

  Taxes on imported goods
• A 10% tariff on imported cars raises their price for consumers.
• Quotas are quantitative limits on the number of imported goods
• What is an embargo in international trade?

  Complete trade ban
• Embargoes can lead to trade disruption and market instability.
• What is the primary purpose of trade agreements?

  Reduce trade barriers
• The World Trade Organization (WTO) oversees global trade rules
• What does NAFTA aim to eliminate?

  Trade barriers in North America
• NAFTA facilitates cross-border trade in goods, services, and investments.
• What are subsidies in international trade?

  Financial support to domestic producers
• Free Trade Agreements (FTAs) are agreements to eliminate or reduce trade barriers
• Match the trade policy with its impact on domestic industries:

  Tariffs ↔️ Protects domestic producers

  Quotas ↔️ Restricts supply

  Subsidies ↔️ Lowers production costs

  FTAs ↔️ Provides access to larger markets
• What is the impact of U.S. tariffs on imported steel?

  Protects domestic steel producers