Answer:
1. b. quota
2. c. a retaliation from the affected trade partners and a lessening of our country's exports
3. b. restricting the amount of foreign trade
4. c. a tax on imported goods
5. c. if a newly established domestic industry can survive in the short-run with tariff protection from foreign competition, it would be able to effectively compete in international markets in the long-run without trade protection because of economies of scale
6. a. increase, increase
7. a. tariff
8. c. there are no gains from specialization and trade
9. a. increase, increase
10. d. among the United States, Canada, and Mexico.
Explanation:
1. A quota is an economic restriction that imposes the limit (in monetary terms) of goods a country may <u>import or export</u>. They can be placed on a particular type of goods. They represent the tool of the government used to increase or decrease international trade.
Not to be confused with voluntary export restriction (VER) which is strictly an <u>export restraint</u> made by the exporting country.
Also, a broader group of trade restrictions where a quota belongs to is the nontariff barrier group. However, that is not the correct answer as it is a broad group of barriers that includes barriers different from quotas.
2. Usually, our attitude towards export/import influences our trade partners in a similar manner. It is economically rational for them to limit the import of our goods if we are doing the same. B) and d) are completely false, as the opposite of both statements is true.
3. Having in mind quotas and tariffs are trade barriers, it is evident that their purpose is to <u>limit the amount of foreign trade</u>. If we wanted to increase foreign trade, we would give incentives to export/import, not impose barriers.
By limiting the amount of imported products, their prices can only go up, not down.
4. Being an essential trade barrier, the purpose of tariffs is to <u>limit foreign trade by putting tax on imported goods.</u> This way, import is directly restricted with a <em>monetary barrier</em>, which is the amount of tax the exporting country has to pay in order to get its goods imported in a foreign country.
5. Having in mind the large amount of<em> fixed costs </em>when the industry is arising, it is important to receive government aid in the beginning steps. The best tools for that are tariffs, limiting the import of similar goods, thus encouraging the market penetration of the domestic goods.
After some time, given that the industry is operating in an efficient manner, it should reach the <em>economies of scale</em> phase. Then, it becomes internationally competitive, as the initially substantial expenses become spread out to a large number of goods.
6. If a particular good has an added tariff, the tariff amount <em>inflates </em>the current price, making the good <em>more expensive</em>.
As the shoe price of domestically produced shoes becomes more competitive afterwards, domestic producers will <em>increase </em>their production due to customer demand aimed towards domestic shoes.
7. Tariffs are a typical trade barrier imposed by the government during the control of imported goods. By putting a tax on imported goods, they are directly influencing the level of importing of that particular good.
On the contrary, subsidies <em>encourage</em> import/export activities by making the import/export prices more competitive.
8. <em>Comparative advantage</em> referring to two countries in international trade is the potency of one of the countries to produce goods with a smaller opportunity cost than the other country.
An <em>opportunity cost</em> is the cost of choice, or in other words, the lost benefit of one option when we choose the other one. So, if there is no comparative advantage, neither of the two countries will have the incentive needed for foreign trade.
9. If the export of domestic products is encouraged, the demand of the same products is increased. When the demand increases, the price <em>follows the same pattern</em>.
As for the production, a higher market price is always <em>motivating producers to create a bigger supply</em>.
10. The <em>NAFTA agreement</em> is of concern for the states that signed the agreement: United States, Canada, and Mexico. The goal of the agreement was to create a trade bloc, essential to regulate the trade between the named countries.
It was signed in 1994. The vicinity of the named countries and the large extent of their already existing trade processes were the incentive for creating such an agreement.
