Chapter 5 Flashcards
Absolute advantage
The economic advantage one nation enjoys that is absolutely superior to other nations.
Administrative policy
Bureaucratic rules that make it harder to import foreign goods
Antidumping duty
Tariff levied on imports that have been “dumped” (selling below costs to “unfairly” drive domestic firms out of business).
Balance of trade
The aggregation of importing and exporting that leads to the country-level
Classical trade theories
The major theories of international trade that were advanced before the 20th century, which consist of (1) mercantilism, (2) absolute advantage, and (3) comparative advantage.
Comparative advantage
Relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.
Deadweight cost
Net losses that occur in an economy as a result of tariffs.
Diamond theory
A theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a “diamond.”
Export
Selling abroad
Factor endowment
The extent to which different countries possess various factors of production such as labor, land, and technology.
Factor endowment theory (Heckscher-Ohlin theory)
A theory that suggests that nations will develop comparative advantages based on their locally abundant factors.
First-mover advantage
Benefit that accrues to firms that enter the market first and that late entrants do not enjoy.
Free trade
The idea that free market forces should determine how much to trade with little or no government intervention.
Import
Buying from abroad.
Import quota
Restrictions on the quantity of imports.
Import tariff
A tax imposed on imports.
Infant industry argument
The argument that if domestic firms are as young as “infants,” in the absence of government intervention, they stand no chances of surviving and will becrushed by mature foreign rivals.
Local content requirement
Requirement stipulating that a certain proportion of the value of the goods made in one country must originate from that country.
Merchandise (goods)
Tangible products being traded.
Modern trade theories
The major theories of international trade that were advanced in the 20th century, which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries.
Nontariff barrier (NTB)
Trade barriers that rely on nontariff means to discourage imports.
Opportunity cost
Cost of pursuing one activity at the expense of another activity, given the alternatives (other opportunities).
Product life cycle theory
A theory that accounts for changes in the patterns of trade over time by focusing on product life cycles.
Protectionism
The idea that governments should actively protect domestic industries from imports and vigorously promote exports.
Resource mobility
Assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry.
Services
Intangible services being traded.
Strategic trade policy
Government policy that provides companies a strategic advantage in international trade through subsidies and other supports.
Strategic trade policy
A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success.
Subsidy
Government payments to domestic firms.
Tariff barrier
Trade barrier that relies on tariffs to discourage imports.
Theory of absolute advantage
A theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage.
Theory of comparative advantage
A theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.
Theory of mercantilism
A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer.
Theory of national competitive advantage of industries
A theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a “diamond.”
Trade deficit
An economic condition in which a nation imports more than it exports.
Trade embargo
Politically motivated trade sanction against foreign countries to signal displeasure.
Trade surplus
An economic condition in which a nation exports more than it imports.
Voluntary export restraint (VER)
International agreement that shows that exporting countries voluntarily agree to restrict their exports.
