POSC 2601 Final Exam Part 1 Questions and Answers Already Passed
Theories of trade - Answersmarxism, mercantilism, liberalism
Marxism - Answersrooted in Karl Marx and Fredrich Engels, focusing on capitalism, class struggle, class
struggle, and exploitation
-economics to determine politics
Mercantilism - Answerstrade and economic policies are manipulated to build up a monetary surplus that
could be used to finance war
-politics to determine economics
Liberalism - Answersmaximize absolute gains for all actors (i.e. wealth, prosperity, well-being)
Free market - Answersa system where an "invisible hand" acts to guide the most efficient patterns of
production, exchange, and consumption
Free trade - Answersthe flow of goods and services across national boundaries unimpeded by tariffs or
other restrictions
Comparative advantage - Answerstrade the goods states make cheaply/efficiently for those goods and
services they cannot
National endowments - Answersland, labor, capital
Division of labor (specialization) - Answerseconomic efficiency
Autarky - Answersan economy that is self-contained and does not engage in trade with outsiders
-low growth
Problems of free trade - Answers-creates winners and losers
-long-term benefits create short-term costs
Protectionism - Answers1. cater to the demands of important domestic industries and interests
2. protect infant industries
3. protect interests and industries that are vital to national security
4. defend against predatory practices
Tariffs - Answersa duty or tax placed on certain types of imports when they enter a country (restrict
imports, a source of govt revenue)
Non-tariff barriers - Answersany other form of restricting imports besides the use of tariffs
, -quotas, subsidies, and restrictions/regulations
Quotas - Answersa limit on the supply of goods coming from a specific state
-ex: US limit imports of Japanese cars in the 1980s
Subsidies - Answerspayments by a govt to a domestic industry to lower the price
-EU's Common Agricultural Policy (CAP)
Restrictions - Answerslabor and environmental regulations
Trade regime - Answersrules, agreements, and institutions that govern international trade relations
among countries
World Trade Organization (WTO) - Answersformed out of GATT in 1995 to promote, manage, and
adjudicate international trade
-relies on reciprocity
WTO 5 principles - Answers1. trade w/o discrimination
2. "freer" trade
3. predictability
4. fair competition
5. economic development and reform
Most favored nation (MFN) - Answerswhenever a WTO member state lowers tariffs on certain kinds of
imports from one member state, all member states are entitled to same treatment with regard to their
goods
Generalized System of Preferences (GSP) - Answerssome industrialized states can grant tariff
concessions to developing states on certain imports
Multilateral agreements - Answerstreaties or agreements of trade and commerce between 3+ states
(liberalism)
Bilateral agreements - Answerstreaties or agreements made between 2 states to promote trade and
commerce
Free Trade Area - Answersgroups of neighboring states that agree to remove most or all trade barriers
within their area
Customs union - Answersstates in free trade area agree to adopt common tariffs towards other free
trade areas or others states that are not members of their agreement
Theories of trade - Answersmarxism, mercantilism, liberalism
Marxism - Answersrooted in Karl Marx and Fredrich Engels, focusing on capitalism, class struggle, class
struggle, and exploitation
-economics to determine politics
Mercantilism - Answerstrade and economic policies are manipulated to build up a monetary surplus that
could be used to finance war
-politics to determine economics
Liberalism - Answersmaximize absolute gains for all actors (i.e. wealth, prosperity, well-being)
Free market - Answersa system where an "invisible hand" acts to guide the most efficient patterns of
production, exchange, and consumption
Free trade - Answersthe flow of goods and services across national boundaries unimpeded by tariffs or
other restrictions
Comparative advantage - Answerstrade the goods states make cheaply/efficiently for those goods and
services they cannot
National endowments - Answersland, labor, capital
Division of labor (specialization) - Answerseconomic efficiency
Autarky - Answersan economy that is self-contained and does not engage in trade with outsiders
-low growth
Problems of free trade - Answers-creates winners and losers
-long-term benefits create short-term costs
Protectionism - Answers1. cater to the demands of important domestic industries and interests
2. protect infant industries
3. protect interests and industries that are vital to national security
4. defend against predatory practices
Tariffs - Answersa duty or tax placed on certain types of imports when they enter a country (restrict
imports, a source of govt revenue)
Non-tariff barriers - Answersany other form of restricting imports besides the use of tariffs
, -quotas, subsidies, and restrictions/regulations
Quotas - Answersa limit on the supply of goods coming from a specific state
-ex: US limit imports of Japanese cars in the 1980s
Subsidies - Answerspayments by a govt to a domestic industry to lower the price
-EU's Common Agricultural Policy (CAP)
Restrictions - Answerslabor and environmental regulations
Trade regime - Answersrules, agreements, and institutions that govern international trade relations
among countries
World Trade Organization (WTO) - Answersformed out of GATT in 1995 to promote, manage, and
adjudicate international trade
-relies on reciprocity
WTO 5 principles - Answers1. trade w/o discrimination
2. "freer" trade
3. predictability
4. fair competition
5. economic development and reform
Most favored nation (MFN) - Answerswhenever a WTO member state lowers tariffs on certain kinds of
imports from one member state, all member states are entitled to same treatment with regard to their
goods
Generalized System of Preferences (GSP) - Answerssome industrialized states can grant tariff
concessions to developing states on certain imports
Multilateral agreements - Answerstreaties or agreements of trade and commerce between 3+ states
(liberalism)
Bilateral agreements - Answerstreaties or agreements made between 2 states to promote trade and
commerce
Free Trade Area - Answersgroups of neighboring states that agree to remove most or all trade barriers
within their area
Customs union - Answersstates in free trade area agree to adopt common tariffs towards other free
trade areas or others states that are not members of their agreement
