Ch. 8: Trade Flashcards
Production possibilities curve (PPC)
Shows the relationship between the maximum production of one good for a given level of production of another good.
Comparative advantage
The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers.
Absolute advantage
The ability of an individual, firm, or country to produce more of a certain good than other competing producers, given the same amount of resources.
Terms of trade
The negotiated exchange rate of goods for goods
Export
Any good that is produced domestically but sold abroad.
Import
Any good that is produced abroad but sold domestically.
Net importer
A country for which imports are worth more than exports over a given time period
Free trade
The ability to trade without government hindrance or encouragement
World price
The prevailing price of a good on the world market.
Globalization
The shift toward more open, integrated economies that participate in foreign trade and investment
Protectionism
The idea that free trade can be harmful, and government intervention is necessary to control trade. Hard for small businesses to compete.
Tariffs
Taxes levied on goods and services transported across political boundaries.
North American Free Trade Agreement (NAFTA)
An agreement signed by Canada, Mexico, and the United States to create a trilateral trade bloc and reduce trade barriers among the three countries.
6 comparatives advantages given to countries
- Natural resources
- Stocks of human made resources
- Technology
- Education work habits, experience in labor force
- Relative abundance of labor and physical capital
- Climate
5 arguments against free trade
- National security concerns
- Fear of efforts of globalization on country’s culture
- Environmental and resource concerns
- Infant industry arguments
- Potential negative effects on local wages and jobs
