Chapter 10: International Trade Flashcards
imports (M)
goods, services, or resources produced abroad and sold domestically
exports (X)
goods, services, or resources produced domestically and sold abroad
quota rent
the income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price
=size of quota x (quota price - world price)
3 benefits to international trade
- access to lower-priced goods
- access to wider variety of goods
- access to scarce resources
comparative advantage
ability to produce a good or service at a lower relative opportunity cost than that of another producer
opportunity cost
the value of the next-best forgone alternative; value of opp given up for another
autarky
a situation in which a country is closed to any international trade
specialization
the practice of using available resources to produce a single good or service rather than multiple goods and services
absolute advantage
ability to produce more output given similar resources than another producer
production possibilities frontier (PPF)
graph showing the possible combinations of 2 different goods or services that can be produced with fixed resources and technology; attainable and efficient
terms of trade
the price of one good, service, or resource in terms of another
gains from trade
the benefit or wealth that accrues to a buyer or seller as a result of trading one good, service, or resource for another
small-country model
a model of international trade in which the production or consumption of a good, service, or resource in the domestic country is small relative to global markets
welfare effects
the effects that change in market conditions, usually price, has on the welfare or economic wellbeing of market participants; generally found by comparing changes in consume and producer surplus
consumer surplus
difference between max price consumers willing to pay and the price they actually pay
producer surplus
difference between price producers receive and the minimum price they are willing to accept
economic surplus
= consumer surplus + producer surplus
deadweight loss
value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium
free trade
trade between nations that is free of barriers such as regulations, tariffs, or quotas
quota
a numerical limit on the amount of a good that can be imported
tarrif
a tax or fee that must be paid on goods imported from other countries
barrier to trade
any policy designed to reduce the competitiveness of foreign producers that wish to sell their goods or services in the domestic market
TARIFF REVENUE (TR)
TR = Tariff x Qi (quantity imported); revenue collected from tariffs
quotas
numerical limit on the amount of a good that can be imported; rightward shift of domestic supply curve
