International Business
Subsidies * A subsidy - a government payment to a domestic producer * Subsidies help domestic producers * compete against low-cost foreign imports * gain export markets * Consumers typically absorb the costs of subsidies
Tariffs
* Tariffs * increase government revenues * provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods * force consumers to pay more for certain imports * So, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce the overall efficiency of the world economy
Local content requirements * A local content requirement demands that some specific fraction of a good be produced domestically * can be in physical terms or in value terms * Local content requirements benefit domestic producers and jobs, but consumers face higher prices
Trade Policy * Administrative trade polices - bureaucratic rules that are designed to make it difficult for imports to enter a country * These polices hurt consumers by denying access to possibly superior foreign products
Dumping
* Dumping - selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value * a way for firms to unload excess production in foreign markets * may be predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market, and later raising prices and earning substantial profits
Comparative and Absolute Advantage * comparative advantage - a country should specialize in the production of those goods that it produces most efficiently and buy the goods that it produces less efficiently from other countries * A country has an absolute advantage in the production of a product when it is more efficient than
Tariffs
* Tariffs * increase government revenues * provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods * force consumers to pay more for certain imports * So, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce the overall efficiency of the world economy
Local content requirements * A local content requirement demands that some specific fraction of a good be produced domestically * can be in physical terms or in value terms * Local content requirements benefit domestic producers and jobs, but consumers face higher prices
Trade Policy * Administrative trade polices - bureaucratic rules that are designed to make it difficult for imports to enter a country * These polices hurt consumers by denying access to possibly superior foreign products
Dumping
* Dumping - selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value * a way for firms to unload excess production in foreign markets * may be predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market, and later raising prices and earning substantial profits
Comparative and Absolute Advantage * comparative advantage - a country should specialize in the production of those goods that it produces most efficiently and buy the goods that it produces less efficiently from other countries * A country has an absolute advantage in the production of a product when it is more efficient than