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IR Final Review - IR Final Review Multiple Choice...

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IR Final Review: Multiple Choice 16/12/2007 12:08:00 Comparative advantage (282-284) States differ in their ability to produce certain goods In order to maximize overall creation of wealth, each state should specialize in producing the goods for which it has a comparative advantage and the trade for goods that another state is better at producing. The principle of comparative advantage shows that even if a country has no absolute advantage in any product (ie. it is not the most efficient producer for any good), the disadvantaged country can still benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of production autarky (286-287) self-reliance; state produces everything itself pays high costs to production goods because it has no comparative advantage relative power tends to fall ex: Albania, China in the 50s and 60s, North Korea after Cold war (mass starvation) non-tariff barriers (289, 309) discourages imports (which protects domestic industry) evade free trade rules such as those of the WTO, the EU, or North American Free Trade Agreement (NAFTA) that restrict tariffs. manufacturing or production requirements of goods, such as how an animal is caught or a plant is grown, with an import ban imposed on products that don't meet the requirements. o Ex: European Union restrictions on genetically-modified organisms or beef treated with growth hormones . Quotas: ceilings on how many goods of a certain kind can be imported protectionism (287-289, 315, 384) protection of domestic industries from international competition.
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Seek to distort free markets to gain an advantage for the state, generally by discouraging imports of competing goods or services Motivation to do this: o Protect an infant industry (starting up in state until it can compete in world markets) o Vital to national security (ex: in 1980’s US wanted to protect US electronics and computer industries against being driven out of business by Japanese competitors, b/c those industries were considered crucial to military production o Ward off predatory practices by foreign companies or states Dumping products in foreign markets at prices below the minimum level necessary to make a profit. (Ex: 1992, Japan dumped minivans on US market) Money lost in short term would lead to a dominance in the world market o Use tariffs, non-tariff barriers, subsidies, tax breaks, loans, etc. Protectionism usually hurts consumers but helps producers. Domestic industry may use protection to avoid needed improvements Temporary protectionism can have a stabilizing affect under certain conditions (short term, and straightforward) trade diversion trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement.
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