Ch 1

Question 1

international trade

Answer 1

the buying and selling of goods and services across countries

Question 2

exports

Answer 2

products sold from one country to another

Question 3

imports

Answer 3

products purchased by one country from another

Question 4

import tariffs

Answer 4

taxes on goods being imported into a country

Question 5

export quota

Answer 5

a trade policy that restricts the amount of a certain good exported

Question 6

migration

Answer 6

the movement of people across borders to live elsewhere

Question 7

foreign direct investment (FDI)

Answer 7

when a firm in one country owns some or all of a firm located in another country; the flow of capital across borders (physical capital like machines, structures, land)

Question 8

trade balance

Answer 8

the difference between a country’s total value of exports and its total value of imports (including both goods and services)

Question 9

trade surplus vs. deficit

Answer 9

surplus if the country exports more than they import and deficit if the country imports more than they export

Question 10

bilateral trade balance

Answer 10

the difference between exports and imports between two countries

Question 11

Which region has the largest share of world trade?

Answer 11

Europe due to close proximity among many countries and having no import tariffs

Question 12

free-trade area

Answer 12

a group of countries that do not impose import tariffs on goods and services traded between them

Question 13

trade embargo

Answer 13

a complete elimination of imports by imposing sanctions

Question 14

Gross domestic product (GDP)

Answer 14

the value of all final goods produced in a year

Question 15

Which countries tend to have the highest ratios of trade to GDP?

Answer 15

those that are small in economic size and are important centers for shipping goods (e.g. HK and Singapore)

Question 16

Which countries tend to have the lowest ratios of trade to GDP?

Answer 16

those that are very large in economic size (typically trade within their borders), not very open to trade, or have trade barriers

Question 17

trade barriers

Answer 17

all factors that influence the amount of good and services shipped across international borders (e.g. import tariffs, transportation costs, events like wars and natural disasters)

Question 18

political economy

Answer 18

explanations for tariffs and other policy actions that combine both economic and political reasoning

Question 19

import quotas

Answer 19

a limit on the quantity of an imported good allowed into a country

Question 20

trade war

Answer 20

worldwide increase of tariffs as a form of retaliation of countries against the actions of one another

Question 21

2 ways to measure FDI

Answer 21

(1) new ownership each year acquired by firms of one country investing in other countries or the “flow” of FDI; (2) total ownership (added up over all years) by firms from one country investing in other countries or the “stock” of the FDI

Question 22

Horizontal FDI

Answer 22

when a firm from one industrial country owns a company in another industrial country

Question 23

Reasons for horizontal FDI

Answer 23

(1) to avoid or minimize taxes (e.g. no need to pay import tariffs); (2) having a foreign subsidiary abroad provides improved access to facilities and market information in that country; (3) an alliance between production divisions of firms allows technical expertise to be shared and avoids possible duplication of products

Question 24

Vertical FDI

Answer 24

when a firm from an industrial country owns a plant in a developing country

Question 25

Reasons for vertical FDI

Answer 25

(1) allows for industrial countries to use their technological expertise to produce at low wages; (2) to avoid tariffs and acquire local partners to sell in the market

Question 26

Reverse-vertical FDI

Answer 26

when companies from developing countries buy firms in industrial countries to acquire their technological knowledge

Question 27

What are the types of non-tariff trade barriers?

Answer 27

import quotas, administrative barriers (e.g. unreasonable documentation or labeling requirements), local-content requirements, buy-local provisions for state procurement

Question 28

What policies are imposed to promote exports (rather than reduce imports)?

Answer 28

export subsidies and state guarantees for export financing

Question 29

export subsidies

Answer 29

government policies that are implemented to incentive local producers to export more of a certain good

Question 30

Why do countries of similar level of industrialization and wealth make up most of the share of world trade?

Answer 30

they have similar consumption patterns and enough choice or variety in the goods they produce

Question 31

How does trade benefit workers in low-wage countries?

Answer 31

similar to migration, workers can become employed in export industries and increase their real income by importing cheaper goods