#21 Macroeconomics III: International Economics

Question 1

International trade

Answer 1

exchange of goods or services across national boundaries

Question 3

Law of comparative advantage

Answer 3

trade can benefit all countries if they specialise in the goods in which they have a comparative advantage in the production of a good, that is, she can produce the good at a lower opportunity cost than another country

Question 4

Free trade

Answer 4

refers to the exchange of goods and services between countries without any artificial restrictions

Question 5

Dumping

Answer 5

refers to the selling of the same good to a foreign country at a lower price than that charged to the domestic buyers and often below the marginal cost of production

Question 6

Free Trade Area/Agreement (FTA)

Answer 6

agreement whereby member countries agree to remove tariff and non-tariff barriers among themselves but each can retain whatever restrictions she wants for non-member countries. Usually also includes better terms for investment in foreign countries.

Question 7

Trade creation

Answer 7

occurs when consumption shifts from a high cost producer to a low cost producer

Question 8

Trade diversion

Answer 8

occurs when consumption shifts from a lower cost producer outside the trading bloc to a higher cost one within it

Question 9

Pattern of trade

Answer 9

viewed in terms of commodity composition of trade and geographical composition of trade

Question 10

Globalisation

Answer 10

refers to the integration or inter-connectedness of national economies through trade of goods and services, foreign direct investment, capital flows, spread of technology and labour migration.

Question 11

Infant industry

Answer 11

one that has potential comparative advantage but is too young or undeveloped to realise this potential, especially in the face of more established foreign competitors with the trend toward globalisation.