Chapter 17 - International Trade Flashcards
What is comparative advantage?
both have something to gain from trade
What does the term gains from trade mean?
both countries gain when each specializes in producing the good for which it has a comparative advantage
Characteristics that affect the cost of production are:
- technology
- factors endowment
- natural resources and climate
Countries do not fully specialize because of:
- trade agreements between countries that my stymie specialization. There is no perfect cree trade
- differences in the natural resources, climate, and relative factor endowment of different areas
What is autarky?
when an economy does not export or import any goods or services
an economy that is self-contained and does not engage in trade with outsiders
- nothing produced outside the country is sold inside and nothing produced inside the country is sold outside
- an economy that does not export or import any goods or services
What are imports?
goods and services that are produced in other countries and consumed domestically
what are exports?
goods and services that are produced domestically and consumed in other countries
What is free trade?
no restrictions to imports and exports
What is protectionism?
a preference for policies that limit trade
What is trade liberalization?
policies and actions that reduce trade restrictions
What is a tariff?
a tax targeted at certain imports
purpose to reduce the quantity of imports to protect domestic producers
What are the two effects of a tariff?
- increases the world price for domestic consumers
- decreases the amount of shortage made up by imports
What is a quota?
limit on the amount of a particular good that can be imported
What are quota rents?
profits earned by foreign firms or governments under a quota
International Labour and Capital
- free trade increases demand for factors of production that are domestically abundant, and it increases the supply of factors that are domestically scarce.
