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Summary Tutorial 4 - The Economics of International trade
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Tutorial states markets and european integration 2016
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Tutorial 4 - The Economics of International trade1. Define economic integration and explain its general objectives.
Removal of economic barriers to increase welfare ultimately, the second thing is that there is
a distribution thing. So in some we are always better off. It helps us because there will be
more competition. By specialization you’re able to increase welfare. Fixed costs don’t
change, doesnt matter how much you produce. If you can spread the fixed cost to a hundred
cakes, the cheaper one cake will be. Negative: removal of economic frontiers by
government. Positive: something with institutions.
2. Explain the different levels of integration and their advantages (customs union, common
market, …).
A higher tariff than an other country is a measure of protection. If this becomes a free trade
area, this protection is gone. If you also want to protect your consumers, then you need to
agree on a customs union. Some European countries are less high, for example if you are a
producer from Kongo, it is cheaper to selll your goods to Italy and then circulate freely,
instead of selling it to Sweden. This is because Italy does not have a protectionist
mechanism. Capital, investments are also very important. EU is a common market, but in
other areas it is an economic union. For particular sectors, we are in different stages of the
integration because we have not achieved the different stages in all areas. Therefore, it is up
to discussion what we are exactly.
3. What is meant with opportunity cost, specialization and comparative advantage?
Opportunity cost is the value of the next best choice. Specialization: we produce what we are
best in. Absolute advantage is when one country is a lot worse in producing a certain
amount of products. Comparative advantage is when one country is worse in producing an
amount of products, but still less bad than the other country is.
4. What are the different kinds of protectionism and give the reasons for establishing trade
barriers.
What is infant industry. Political reasons, employment, to be reelected again, economic, to
protect the producers and the sector. General understanding why we trade, what are the
advantages and disadvantages.
5. Is trade better for everyone?
There is consumers and producers and to some it is always advantages. It has an effect so
sometimes countries have to supply more and banks can get bankrupt. Trade is in this way
advantageous to consumers but not to the companies.
Effect of bigger states and effect of smaller stage. Larger states can influence the world price
and smaller state just have to accept it.
6. What are the advantages and disadvantages of protectionism?
Distorting competition. If we don’t trade and get the advantage of trading because we protect
the market, then there is no positive welfare effect.
7. What are the welfare effects of protectionism?
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