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Exports

Goods/Services that are produced and sold to other nations

Imports

Goods/Services that one country buys from another

Absolute advantage

One country can more of a product than another

Specialization

some countries focus on producing good/services that they are good at.

Comparative advantage

when a country has the ability to produce a product relatively more efficiently, or at a lower opportunity cost

opportunity cost

the best alternative when making a choice. It is what you didn't choose.

tariff

a tax placed on imported goods

protective tariff

a tariff high enough to protect less efficient domestic industries

revenue tariff

generates revenue for the government

quota

a specific limit or number of a product that can be imported

standards

we have certain standards that many products must meet to be imported (FDA inspection)

protectionists

support trade barriers to protect domestic companies

free trader

supports little or no barriers to trade

infant industries

new and emerging industries (argument for protection until they can compete)

embargo

no trade with a nation--usually for political reasons

balance of payments

the difference between the money a country pays out to and receives from other nations

Smoot-Hawley Tariff

restrictive tariff, price increased nearly 70%, other nations retaliated (greatly restricted international trade)

Reciprocal Trade Agreements Act

1934, reduced tariffs, contained most favored nation clause

Most favored nation clause

allows a third country to have the same tariff policy as the two original nations

GATT

1947, General Agreement on Tariffs and Trade, reduced import quotas and trade restrictions

WTO

Works to help trade flow smoothly among nations & took over much of GATT

NAFTA

North American Free Trade Agreement--1993 Lowered trade barriers between Canada, U.S., and Mexico

Foreign Exchange

foreign currencies used to facilitate trade among nations

Foreign Exchange Rate

the price of one country's currency in relation to anothers

Fixed Exchange Rates

a rate of exchange that doesn't change--commonly used when we operated on the gold standard

Gold Standard

All currencies would have an actual gold value

Flexible Exchange Rates

value set by supply and demand (also called floating exchange rate)

Trade Deficit

value of products imported is greater than the value of goods exported

Trade Surplus

value of products imported is less than the value of goods exported

Weak dollar

the value of the dollar is less than that of other countries, foreign goods are more expensive; exporters are helped

Strong dollar

the value of the dollar is more than that of other countries, foreign goods are less expensive; importers are helped

Multinational Corporation

does business--sales and manufacturing in different countries around the world

outsourcing

sending jobs/production to other countries

trade-weighted value of the dollar

index that displays strength of the dollar compared to major foreign currencies

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