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Chapter Review Chapter 19: International Trade and Trade Policy

  1. The benefits of economic interdependence apply to individuals and firms within a country as well as to countries within the world. No individual and no country is self-sufficient.
  2. The principle of comparative advantage asserts that countries should export the goods in which their production costs are relatively low.
  3. Specialization tends to increase productivity for three reasons: specializing eliminates the time it takes a worker to switch from one production task to another, workers who repeat a task become more skilled at it, and specialization creates a fertile environment for invention.
  4. A country's comparative advantage can arise from natural endowments, acquired endowments, superior knowledge, specialization, or interactions of these factors.
  5. There is a basic difference between trade among indi¬ viduals and trade among countries: trade among countries may actually leave some individuals within the country worse off. Though free trade enhances national income, fears about job loss and wage reductions among low-skilled workers have led to demands for protection.
  6. Countries protect themselves in a variety of ways besides imposing tariffs. The most important nontariff barriers are quotas, voluntary export restraints, and regulatory barriers. Quotas and voluntary export restraints are now banned by international agreement.
  7. While all countries benefit from free trade, some groups within a country may be harmed. In the United States, unskilled workers and those in industries where, without trade, there is limited competition may see their wages fall. Some workers may lose their jobs and may require assistance to find new ones.
  8. Laws nominally intended to ensure fair trade-such as antidumping laws and countervailing duties-often are used as protectionist measures.
  9. Beggar-thy-neighbor policies, which attempt to protect jobs by limiting imports, tend to be counterproductive.
  10. The WTO, which replaced GATT, provides a framework within which trade barriers can be reduced. It is based on reciprocity, nondiscrimination, and transparency.
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