44
votes
Why does Taiwan dominate the semiconductors market?
This is because semiconductors have economies of scale over extremely large number of units produced.
Economies of scale mean that the more you produce the cheaper production gets. Many firms will ...
- 54.4k
27
votes
Would poorer countries be better off by cutting off all trade with rich countries?
Would poorer countries be better off by cutting off all trade with rich countries?
Almost certainly not.
One of the largest consensus in economic profession is that free trade and openness is ...
- 54.4k
22
votes
Are financial markets "unique" for each "currency pair", or are they simply "translated"?
It's not clear what level of answer you're looking for, so here is a much more basic answer.
There are indeed many exchanges with many different prices. However, if you have noticed that you could ...
- 321
20
votes
Accepted
How do economic sanctions work? How do they not create an arbitrage opportunity?
As the other answer says the sanctions include prohibition on selling to third parties.
However, this still creates incentives to cheat on these sanctions. It is not always so easy to determine final ...
- 54.4k
19
votes
Accepted
Why are imports subtracted from GDP?
When we import something, we consume it. So when calculating consumption we are bound to count import as a positive component of GDP. Since it is not (we did not produce imports domestically), we ...
- 1,661
13
votes
How could the economic cost of the world not speaking the same language be estimated?
To measure the costs of different people speaking different languages, researchers use a "linguistic distance" metric, see for example this paper. However, measuring the cost of linguistic diversity ...
- 6,885
11
votes
How do economic sanctions work? How do they not create an arbitrage opportunity?
The short answer is yes, the impact of sanctions (and other export controls) on the market prices of goods can create an arbitrage opportunity for someone willing to violate or circumvent those ...
- 211
9
votes
Would poorer countries be better off by cutting off all trade with rich countries?
The Guardian article reports that poor workers make the rich richer.
That may be unjust (the Guardian thinks so), but "Making the rich richer" is not the same as "making the poor poorer&...
- 191
8
votes
Why are imports subtracted from GDP?
One way to navigate rather safely in National Accounting Identities, is to put on the one side "what you have available" and on the other side "what you do with it". In the specific case ($M$ being ...
- 33.4k
8
votes
Can a closed economy flourish?
It depends on what you mean by "sustained growth" and "flourishing markets".
Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently ...
- 28.6k
8
votes
Are financial markets "unique" for each "currency pair", or are they simply "translated"?
Economic analysis always requires making some assumptions at some point. The assumptions that you make should try to fit reality the best that they can.
Regarding your specific situation, there is a ...
- 9,345
7
votes
What are some critiques to the principle of comparative advantage?
One of the most common critiques is that the standard model is a static analysis. While a country might be better off today by focusing on its comparative advantage, its longer term prospects depend ...
- 1,346
7
votes
A valid argument against free trade?
I can get to more technical papers, but it's not a big secret what you have quoted. E.g. The Economist quotes MIT professor John Van Reenen:
But just because the size of the pie expands [due to ...
- 3,918
7
votes
Accepted
Why do we spread knowledge across nations?
This is a long comment that is too long for the comment box.
In fact, many research projects in US are secretive, especially the ones related to military. At the same time, much, much more research ...
- 1,816
6
votes
Accepted
Ricardo's theory of comparative advantage
The solution concept used in Ricardo's modell is the competitive equilibrium. Let the set of countries $N$ be defined as $N = \left\{E,P\right\}.$ (England, Portugal) Then the competitive equilibrium ...
- 28.6k
6
votes
Accepted
Why don't prices of USA labor and Mexican labor equalise?
The underlying reason for persistent wage differences is probably that Mexican workers are less productive than American workers.
It is sufficient that workers in some tradeable sectors are more ...
- 970
6
votes
Accepted
Are there plausible scenarios for the U.S. dollar to fall out of use as the world's reserve currency?
There are many plausible scenarios in which the dollar ceases to be the de-facto currency. They all have a few things in common. For people to stop using dollars for international trade, there would ...
- 836
6
votes
Accepted
How is wealth created?
First we need to discuss what wealth is. Is it just the amassment of valubles? In the 16th-18th century, rulers thought so. This notion is called mercantilism. This idea was rejected by Adam Smith in ...
- 1,391
6
votes
Accepted
Does the Rybczynski theorem also hold in modern trade theory models?
The Rybczynski theorem is not directly applicable to the Melitz (2003) model, because the model the Rybczynski theorem is originating from, the Heckscher-Ohlin model, is built on different assumptions ...
5
votes
Accepted
Gravity Equation Interpretation
My understanding is that the gravity equation can be derived from different settings.
You can assume that each country
1/ produces only one product. This is knwon as the "Armington assumption" as in ...
- 6,885
5
votes
Accepted
Which currency is preferred when countries with different currencies purchase imports/sell exports?
There isn't a typical answer.
The vendor may want paying in whatever currency represents the highest proportion of their costs, as this reduces their currency risk.
But there may also be ...
- 8,123
5
votes
Accepted
Omitted variables in gravity model
The omitted variable bias in gravity model is an important issue given that some factors are unobserved or difficult to quantity. To solve this issue trade economists tend to rely on various fixed ...
- 6,885
5
votes
Accepted
Is a 'Brexit' really that bad?
tl;dr: Uncertainty & trade tariffs
detail
The economics have been assessed by a large number of economic specialists, including the very well-respected and independent Institute for Fiscal ...
- 8,123
5
votes
Accepted
Who exploits comparative advantage in international trade?
It's fine to make a supposition that it costs Colombia twice as much to make cars as coffee, and Japan twice as much to make coffee as cars. It's also fine to express these ratios in terms of the ...
- 8,311
5
votes
Does China subsidize its exports?
World Trade Organization (WTO) rules prohibit export subsidies and China joined the WTO almost 15 years ago (in December 2001). As a condition of membership, China had to eliminate export subsidies in ...
- 6,885
5
votes
Accepted
Does trade lead to economic growth in the most basic models of trade?
It depends on how you define "growth". Trade models have multiple goods in them, so there's no unique way to define "growth" - you are just moving along a fixed production possibility frontier. You ...
- 691
5
votes
Why is Algeria the #2 milk powder importer in the world?
Four-fifths of Algeria is just desert --which leaves no room for agriculture. The Algerian economy is mostly powered just by the oil industry, which contribute about ~70% of government revenues. Oil ...
- 790
5
votes
Why is Algeria the #2 milk powder importer in the world?
To complement WorldGov's great points, there are milk subsidies provided in Algeria, which might have been abused for re-sale in other countries:
[These measures of “market saturation” will be ...
- 2,145
5
votes
Why are trade deficits considered unfair?
You are correct. Trade deficits are not unfair, although it is hard to define unfair in an economic sense. No one is forced to trade and trade represents a consensual agreement.
The strongest ...
- 6,128
5
votes
Accepted
The term "Most Favoured Nation" is misleading to me. Please explain
You seem to have it the wrong way around.
The act of country A extending Most Favoured Nation status to country B only affects the import tariffs on country B's products, not those on other ...
- 28.6k
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