IB Economics - Free trade

What is the impact of an increase of tariffs on imported goods for domestic producers

• Government revenues will increase

• Prices will decrease

• Imports will fall

• Domestic firms will produce more

What is the impact of a quota on imported goods?

• Government tariff revenues will increase

• Prices will decrease

• Employment will increase

• There will be efficiency gains

What is a potential benefit of free trade?

• More employment in sunrise industries

• Specialization in commodity production

• Less unemployment in sunset industries

• Access to goods that are not produced in the domestic market

What is the WTO?

• Replaced the GAFT (General Agreement on Free Trade)

• Countries have the ability to trade with other countries as they see fit.

• Current rounds of negotiations are called the “Dota Rounds’”

• Lowers trade barriers in developed nations to increase imports

What is true about comparative advantage?

• It was first thought out by the mathematician David Rimaro

• A country can produce at a lower opportunity cost than another country.

• A country can produce at a higher opportunity cost than another country.

• Comparative advantage assumes that costs change and there is not a constant return to scale.

Which one is not an argument in favour of protectionism

• Protects domestic employment

• Protects the economy from low-cost labour

• To promote overspecialization

• Certain industries need to be protected from free trade in case they are needed at times of war

What was the Doha round?

• An agreement consisting only developing countries

• Trade negotiation among WTO members

• An agreement revolving trade negotiation that involves only developed countries

Why are tariffs important for developing countries/economies?

• Tariffs are important to increase the productivity of domestic firms

• Tariffs help bring more foreign direct investment and improves trading relations

• Government tariff revenues are an important source of government revenue for developing nations

• Developing nations depend on tariffs to control their rate of exchange