Explain the significance of economic institutions in international trade
Economic institutions define the environment in which people can trade. As an example,criminal law is one of many conditions that affects trade between people. The law limits peoples' opportunities, it threatens a person with punishment that may be severe enough to deter him/her from stealing goods belonging to someone else or offering to sell something illegal. The law also expands opportunities for trade. If the law makes people less likely to steal what a person produces, he/she can be more confident of earning a return on his/her investment in a facility to produce them.Institutions like laws can change with their environment. The significance of some important forms of economic institutions are discussed below:
a) Contracting: The delivery and payment obligations present in a contract along with numerous other clauses help to increase the economic value a transaction creates for the trading parties.
b) Market Protocols: Buyers and sellers often agree to use market protocols to propose and make transactions. Auctions are an institution where the protocols may determine a participant's best bidding strategy and the expected revenue of the seller. The different protocols in various types of auctions lead rational bidders to choose different strategies.
c) Etiquette: Whether two strangers can arrange a transaction that benefits them both can depend on whether they meet each other's expectations before the transaction.
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Many service-sector jobs in the United States have moved to other countries where these jobs are done at a fraction of the cost. The outsourcing of jobs overseas is heavily debated by politicians, policy makers, and economists in the United States
Based on your understanding of trade and the benefits and losses from trade, how do you think outsourcing affects social surplus in the domestic economy?
If a production process generates pollution, then a competitive market will produce more of the good than is socially optimal because
A) firms take all costs into consideration. B) firms incur all costs of production but ignore some of them. C) firms ignore the costs of production that they do not incur. D) firms set price equal to social marginal cost.
"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement
a. True, increased demand from developing countries will swamp the existing supply of resources. b. True, increased demand from China and India will lead to large shortages in the North America and Europe. c. False, the shortage will be limited to China and India. d. False, increasing scarcity will result in higher prices and the deployment of new technologies that increase the efficiency of production, and together these markets forces will help to balance demand and supply worldwide.
A depreciation of the South Korean won against the U.S. dollar will
A. Raise the dollar price of Korean goods. B. Lower the won price of Korean goods. C. Raise the won price of U.S. goods. D. Lower the dollar price of U.S. goods.