Chapter 18: Trading With Other Nations Flashcards
Comparative advantage
Ability of a country to produce a product at a lower opportunity cost than another country
Exchange rate
The price of one nation’s currency in terms of another nation’s currency
Foreign exchange markets
Markets dealing in buying and selling foreign currency for businesses that want to import goods from other countries
Fixed rate of exchange
System under which a national government sets the value of its currency in relation to other currencies
IMF International Monetary Fund
Agency whose member governments once were obligated to keep their foreign exchange rates more or less fixed; today it offers monetary advice and provides loans to developing nations
Devaluation
Lowering a currency’s value in relation to other currencies by government order
Flexible exchange rate
Arrangement in which the forces of supply and demand are allowed to set the price of various currencies
Depreciation
Fall in the price of a currency through the action of supply and demand
Balance of trade
Difference between the value of a nation’s exports and its imports
Tariff
Tax placed on an imported product
Revenue tariff
Tax on imports used primarily to raise government revenue without restricting imports
Protective tariff
Tax on imports used to raise the cost of imported goods and thereby protect domestic producers
Import quota
Restriction imposed on the number of units of a particular good that can be brought into the country
Embargo
Complete restriction on the import or export of a particular good or goods going to or coming from a specific country
Protectionists
People who argue for trade restrictions to protect domestic industries
