Chapter 3 Flashcards
Absolute Advantage
The ability to produce a specific product more efficiently than any other nation
Comparative Advantage
The ability to produce a specific product more efficiently than any other product
Favorable balance of trade
When a country exports more than it imports
Trade Deficit
When a country imports more than it exports
Negative balance of trade
Buying more than selling
Balance of Payments
Total flow of money into a country VS total flow of money out of the same country
Import Duty or Tariff
A tax applied to an imported product
Revenue Tariffs
Solely to generate income for the government
Protective Tariffs
to protect a domestic industry from competition
Keeps import prices at or above domestic prices
Reduces the amount of units imported
Dumping
introducing into a market large quantities of a product at a price significantly lower than the existing market price
unfairly drives down the price of product, usually price is less than fair value prices, stifles competition
Non-tax action
imposed by government to give favorable advantage to domestic over foreign businesses
Import Quotas
Limits amounts
Embargo
Trading is stopped
Currency Devaluation
reduce value of currency in relation to currency of other countries
Foreign-exchange control
Limits purchase or sale of foreign currency which limits how many goods can be purchased
Bureaucratic Red Tape
“Unnecessary” requirements
Reasons FOR Trade Restrictions
- Equalize a nation’s “Balance of Payments”
- To protect new or weak industries
- Protect national security
- Protect health of citizens
- Retaliation for “others” strict trade positions
- Protect domestic jobs
Reasons AGAINST Trade Restrictions
- Higher prices for consumers (limits foreign competition
- Restriction of consumer choices
- Misallocation of international resources.
- Loss of jobs
General Agreements on Tariffs & Trade (GATT)
- End of World War II… (132 nations) 90% of world trade
- MFN (Most Favored Nation) status insured equal treatment to all participating countries
World Trade Organization (WTO) (1991)
- to oversee trade rules and disputes
- to remove trade “barriers”
Licensing
Contractual agreement where one firm permits another to produce and market, its product and brand name for some compensation
