22 terms

Economics International Trade Definitions

STUDY
PLAY

Terms in this set (...)

Absolute advantage
A country has an absolute advantage when it can produce a good with less resources than another. As such, having an absolute advantage makes for lower costs and greater profit.
Administrative obstacles/barriers (X)
A bureaucratic procedure/administrative task ("red-tape barriers") that a trading firm has to get through when shipping the product from one country to the other. This may involve, for example, the burden of preparing health certificates, but not that of making the product itself to comply with the health requirements.
Balance of Trade
The difference between the value of visible exports and the value of visible imports. Barriers to trade are often imposed to lower any trade deficits (more imports than exports).
Comparative Advantage
A country has a comparative advantage in the production of a good when they can produce a good at a lower opportunity cost than another country.
Consumer Surplus
Monetary gain made by consumers who purchase a product for a lower price than they are able to pay.
Customs Union
A custom union is an agreement that countries can make (two or more), that agree to trade freely between them. They also agree to have common external trade barriers to any country who is trying to import them into their custom union. the countries are no longer sovereign. All regions with common markets or economic or monetary unions are custom unions.
Economic Union
A group of countries that have a common market may also integrate economic policies. They may implement fixed exchange rates or abandon individual currencies altogether. This is a significant compromise of sovereignty.
Differences in factor endowments
The amount of land, labor, capital and entrepreneurship that a country possesses and can exploit for manufacturing. A primary reason for trade.
Dumping
When manufacturers export a good to a country at a lower price than the production costs of the product, which is often damaging to the domestic market and producers of the good as they cannot compete with such a low price.
Embargo (X)
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, they are also similar to economic sanctions and are generally considered legal barriers to trade.
Free Trade
A trade bloc where member countries have agreed to eliminate tariffs and quotas, in order to remove preferences on goods and services traded in between them. Within the boundaries of these countries, goods and services may move freely.
Infant Industry Argument
An argument for protecting a newly established industry to enable it to grow and gain economies of scale. Without protective barriers, small industries in LDCs would not survive the low cost competition.
Opportunity Cost (X)
The cost of any activity measured in terms of the best alternative activity which is forgone. Contributes to the theory of comparative advantage.
Producer Surplus
The difference between a producers total revenue and the opportunity cost of production. Amount that producers benefit by selling at a market price that is higher than the lowest price they are willing to produce at. (graph)
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs and restrictive quotas, designed to allow fair competition between imports and goods and services produced domestically. It may take economic forms, such as tariffs, quotas and subsidies, or non-economic forms, such as red tape and discrimination of goods.
Quota (X)
A restriction on the quantity of a good that a firm is permitted to sell or that a country is permitted to import.
Subsidy (X)
A payment made by the government to producers of good and services, usually to prevent the decline of that industry, or an increase in the prices of its products, or simply to encourage it to hire more labor. Causes market inefficiency and long-term dependence of domestic industries to the subsidy.
Tariff (X)
A tax that is imposed by the importing country when a good crosses an international boundary. It is a barrier for trade that brings revenue to the government and a disincentive for foreign importers, and is thus a type of protectionism.
Specialization
When economies concentrate their skills on tasks at which they are the most skilled. Countries that have a comparative advantage in the production of a certain good will specialize in that good.
Trading Bloc
A trading bloc is a collection of sovereign states who have decided to adopt similar rules and regulations in relation to trade.
Voluntary Export Restraints (VER's)
A self imposed restriction by an exporting country on the volume of its exports of a particular good. Typically VERs arise when the import-competing industries seek protection from a surge of imports from particular exporting countries. (Wikipedia)
WTO
An international agreement committed to free multilateral trade through the reduction of trade barriers. The organization sets the rules for global trading and resolves disputes between its member countries.