Chap. 5

Question 1

Exporting

Answer 1

selling abroad

Question 2

Importing

Answer 2

buying from abroad

Question 3

Trade Deficit

Answer 3

an economic condition in which a nation imports more than it exports

Question 4

Trade Surplus

Answer 4

an economic condition in which a nation exports more than it imports

Question 5

Balance of Trade

Answer 5

the aggregation of importing and exporting that leads to the country-level trade surplus or deficit

Question 6

Classical Trade Theories

Answer 6

the major theories of international trade that were advanced before the 20th century, which consists of mercantilism, absolute advantage and comparative advantage

Question 7

Modern Trade Theories

Answer 7

the major theories of international trade that were advanced in the 20th century, which consist of product life cycle, strategic trade and national competitive advantage

Question 8

Theory of Mercantilism

Answer 8

a theory that holds the wealth of the world (measured in gold and silver) is fixed and that a nation that exports more and imports less would enjoy the net inflows of gold and silver and thus become richer

Question 9

Protectionism

Answer 9

the idea that governments should actively protect domestic industries from imports and vigorously promote exports

Question 10

Free Trade

Answer 10

trade uninhibited by trade barriers

Question 11

Theory of Absolute Advantage

Answer 11

a theory suggesting that under free trade, each nation gains by specializing in economic activities in which it has absolute advantage

Question 12

Absolute Advantage

Answer 12

the economic advantage that is absolutely superior to other nations

Question 13

Theory of Comparative Advantage

Answer 13

a theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations

Question 14

Comparative Advantage

Answer 14

relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations

Question 15

Opportunity Cost

Answer 15

given the alternatives (opportunities), the cost of pursuing one activity at the expense of another activity

Question 16

Resource (Factor) Endowments

Answer 16

the extent to which different countries possess various resources (factors), such as labor, land, and technology

Question 17

Factor Endowment Theory (or Heckscher-Ohlin Theory):

Answer 17

a theory that suggests that nations will develop comparison advantage based on their locally abundant factors

Question 18

Product Life Cycle Theory

Answer 18

a theory that accounts for changes in the patterns of trade over time by focusing on product life cycles

Question 19

Strategic Trade Theory

Answer 19

a theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success

Question 20

First-Mover Advantage

Answer 20

advantage that first entrants enjoy and do not share with late entrants

Question 21

Strategic Trade Policy

Answer 21

a trade policy that conditions or alters a strategic relationship between firms

Question 22

Theory of National Competitive Advantage of Industries (or ‘Diamond’ Model):

Answer 22

a theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a diamond

Question 23

Resource Mobility

Answer 23

the ability to move resources from one part of a business to another

Question 24

Tariff Barrier

Answer 24

trade barriers that rely on tariffs to discourage imports

Question 25

Nontariff Barrier (NTB):

Answer 25

trade barriers that rely on nontariff means to discourage imports

Question 26

Import Tariff

Answer 26

a tax imposed on imports

Question 27

Deadweight Loss

Answer 27

net losses that occur in an economy as the result of tariffs

Question 28

Subsidy

Answer 28

government payments to (domestic) firms

Question 29

Import Quota

Answer 29

restrictions on the quantity of imports

Question 30

Voluntary Export Restraint (VER):

Answer 30

an international agreement in which exporting countries voluntarily agree to restrict their exports

Question 31

Local Content Requirement

Answer 31

a requirement that a certain proportion of the value of the goods made in one country originate from that country

Question 32

Administrative Practices

Answer 32

bureaucratic rules that make it harder to import foreign goods

Question 33

Antidumping Duty

Answer 33

costs levied on imports that have been ‘dumped’ (selling below costs to ‘unfairly’ drive domestic firms out of business)

Question 34

Infant Industry Argument

Answer 34

the argument that temporary protection of young industries may help them to attain international competitiveness in the long run

Question 35

Trade Embargo

Answer 35

politically motivated trade sanctions against foreign countries to signal displeasure