Module 10: International Trade Policy - ECON 223 - Macroeconomic Policy (ASO) NS22

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2022-07-07 £510:14 Close All Sections MODULE OVERVIEW LEARNING OUTCOMES After successful completion of this module, you will be able to: e Explain the benefits and risks associated with international trade; e |dentify "winners" and "losers" in international trade; e Explain comparative advantage, the factor price equalization theorem, and the locomotive theory; e Recall whether import quotas, import tariffs, export tariffs, and export subsidies provide net gains or losses to the nation which is applying them; e Critique the promotion of Fair Trade products; e Critique the local food movement; e Explain Dutch disease and identify ways to mitigate it; e Explain the Resource Curse and identify ways to mitigate it. COURSE MATERIAL Chapter Notes and Self-Study Questions e Chapters 42-45 e Module 8: Exchange Rates ASSESSMENTS AND ACTIVITIES Please refer to the Course Timeline for all due dates. https://ong.queensu.ca/content/enforced/650464-ECON223-Macroec...SessionVal=6eETwZAKDmMczbLgMhvuk0OIN4&ou=650464&d2|_body_type=3 %1/25T]
2022-07-07 £510:14 e Current Events Discussion Forum 3 ends o Quiz#9 CHAPTER 42: INTRODUCTION TO INTERNATIONAL TRADE POLICY Introduction to International Trade Policy The main policy issues in trade are whether or not to trade, and whether or not to protect certain sectors using tariffs, subsidies, or quotas. Whether or not to Trade One core principle applies to trade at every level: whether trade is between neighbours, cities, provinces, or nations, every voluntary and fully-informed trade makes both signatories better off. If | contract with you to shovel my driveway for $15, and you agree, we are both better off, assuming that you know exactly how long my driveway is, and assuming that you are not pressured to shovel my driveway for fear of getting a lower mark in this course! Now, if | have taken away your house and home, and you have no choice but to shovel driveways for a living, you are obviously not better off than you were before. But that is a separate matter. We are not talking about me stealing your house and home, which is anathema to ethics and to economics, but about whether you, given your current situation, would like to shovel my driveway for $15 or not, and whether | would like to pay you the $15 for shoveling my driveway, or not. Perhaps we make the deal. Unknown to me, you would have been willing to shovel my driveway for $10. In that case, your "producer surplus" is $5 (=$15-$10). Unknown to you, | would have been willing to pay you $25. My "consumer surplus" is $10 (=$25-%$15). We both have gained from trade, and | have gained more measured in dollars. But the fact that my surplus is larger than yours does not take away from the fact that you too have gained from trade. https://ong.queensu.ca/content/enforced/650464-ECON223-Macroec...SessionVal=6eETwZAKDmMczbLgMhvuk0OIN4&ou=650464&d2|_body_type=3 562/25T1
2022-07-07 £510:14 Who gains the most from trade depends on who is the better bargainer, or who has better alternative options. What if it was not you and | who made the deal about the driveway, but your father and 1?7 In that case, there is no guarantee that you are made better off from the trade. International trade is different from trade between individuals in one critical respect: each nation represents thousands or millions of individual driveway shovelers, apple pickers, plastics manufacturers, etc. When two or more nations begin to trade, each nation will begin to specialize in some industries and decline in others. Though the nation as a whole benefits, many individual people do not. Unless they are fully compensated by those who gain from trade, those people are worse off than before international trade. The Winners and Losers Table 42-1 Gainers and Losers in Trade Those who gain Those who lose stakeholders in industries which stakeholders in industries which expand contract owners of the abundant resource: in owners of the domestically scarce labour-abundant countries, the resource: in labour-scarce countries, labourers; in capital-abundant the labourers; in capital-scarce countries, the capitalists; in land-rich countries, the capitalists; in land- countries, the landlords. scarce countries, the landlords. prices moderate from the highs and lows in various countries under autarky. As countries specialize, more is produced internationally. Each nation can afford to acquire more those whose monopoly or goods and services than before. If monopsony power is weakened https://ong.queensu.ca/content/enforced/650464-ECON223-Macroec...SessionVal=6eETwZAKDmMczbLgMhvuk0OIN4&ou=650464&d2|_body_type=3 563/25T1
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