6. International Trade

Question 1

Domestic Price

Answer 1

The equilibrium price that would occur in a country if no internatinal trade is allowed.

Question 2

World Price

Answer 2

The equilibrium price on the international market,

Question 3

Small Open Economy

Answer 3

An economy that participates in international markets, but its production or consumption is small enough compared to the rest of the world that its supply or demand does not affect the world price.

Question 4

Closed Economy

Answer 4

An economy that does not engage in international trade. Also known as autarky.

Question 5

Gains from Trade

Answer 5

The Gains from Trade capture the extra surplus available in an open economy compared to a closed economy.

Question 6

Import Tariff

Answer 6

An import tariff represents a tax on imported goods or services.

Question 7

Import Quota

Answer 7

An import quota represents a quantity limit on the amount of goods or services permitted to be imported.