John G. Marcis

13 – INTERNATIONAL TRADE

Publisher Summary This chapter discusses international trade. Nations trade because trade is mutually advantageous—both parties to an exchange are better off. Most trade takes place in goods and services that either trading partner could produce. Trade that takes place according to comparative advantage is beneficial for all countries involved, increases total production, and tends to conserve scarce natural resources. Trade is restricted through the use of tariffs and quotas. Tariffs are taxes on imports; quotas are physical limitations on the amounts of imports. Both reduce the amounts of imported goods. The costs of tariffs are shared to a varying degree by consumers and producers, depending on the characteristics of the demand for imported goods. Most economists think that tariffs and quotas are detrimental to the economy because they disrupt the mutually beneficial trade flows. Tariffs and quotas benefit certain groups in the economy at the expense of consumers in general and foreign producers.