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International Trade 334

Terms in this set (35)

international trade
the movement of goods and services across borders
migration
the flow of people across borders as they move from one country to another
foreign direct investment (FDI)
the flow of capital across borders when a firm owns a company in another country
export
a product sold from one country to another
import
a product bought by one country from another
trade balance
the difference between is total value of exports and its total value of imports (usually including both goods and services)..
trade surplus
where countries that export more than they import
trade deficit
where countries import more than they export
bilateral trade balance
the difference between exports and imports between two countries
value-added
the difference between the value of the a good when it leaves another country and the cost of parts and materials purchased in that country and imported from other countries.
import tarriffs
taxes on international trade
gross domestic product (GDP)
the value of all final goods produced in a year
trade barriers
all factors that influence the amount of goods and services shipped across international borders.
import quotas
a limitation on the quantity of an imported good allowed into a country
horizontal FDI
when a firm from one industrial country owns a company in another industrial country.
vertical FDI
when a firm from an industrial country owns a plan in a developing country
technology
Differences in each country's ability to manufacture products (Reason why countries trade goods with one another)
resources
labor, capital, and land (reason why countries trade goods with one another)
proximity
how close they are to one another (reason countries trade goods with one another)
offshoring
producing the various parts of good in different countries and then assembling it in a final location (reason countries trade goods with one another). exporting manufacturing and services
Ricardian model
proposed by the 19th century economist David Ricardo. this model explains how the level of a country's technology affects the wages paid to labor, such that countries with better technologies have higher wages.
trade pattern
the products it imports and exports
free-trade area
sometimes neighboring countries take advantage of their proximity by joining into a free-trade area, in which the countries have no restrictions on trade between them.
natural resources
such as land and minerals
labor resources
labor of various education and ski levels
capital
machinery and structures
factors of production
the land, labor, and capital used to produce goods and services.
absolute advantage
country has the best technology for producing a good
comparative advantage
A country has comparative advantage in
producing those goods that it produces best compared with how well it produces other goods
Law of Comparative Advantage
There is a potential for each trading partner to gain from trade when each specialize in the production of and exports the good in which the party is relatively more efficient.
free trade, a country will produce more of and consume less of a good for which they have a comparative advantage.
marginal product of labor (MPL)
the extra output obtained by using one more unit of labor
production possibilities frontier (PPF)
a special feature of the Ricardian model, follows from the assumption that the marginal products of labor are constant. A curve depicting all maximum output possibilities for two or more goods given a set of inputs
opportunity cost
the slope equals the ratio of marginal products of the two goods. MPCcxL/(MPLwxL)
indifference curves
the combinations of two goods such as wheat and cloth, that a person or economy can consume and be equally satisfied. An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.
Terms of Trade (ToT)
refers to the relative price of exports in terms of imports. ToT is constructed as the ratio of export prices to import prices.
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