Chapter 5 Flashcards
Exporting
selling abroad
Importing
buying from abroad
Trade Deficit
an economic condition in which a nation imports more than it exports
Trade Surplus
an economic condition in which a nation exports more than it imports
Balance of Trade
the aggregation of importing and exporting that leads to the country-level trade surplus or deficit
Classical Trade Theories
the major theories of international trade that were advanced before the 20th century, which consists of mercantilism, absolute advantage and comparative advantage
Modern Trade Theories
the major theories of international trade that were advanced in the 20th century, which consists of product life cycle, strategic trade and national competitive advantage
Theory of Mercantilism
a theory that holds the wealth of the world (measured in gold and silver) is fixed and that a nation that exports more and imports less would enjoy the net inflow of gold and silver and thus become richer
Protectionism
the idea that governments should actively protect domestic industries from imports and vigorously promote exports
Free Trade
trade uninhibited by trade barriers
Theory of Absolute Advantage
a theory suggesting that under free trade, each nation gains by specializing in economic activities in which it has absolute advantage
Absolute Advantage
the economic advantage that is absolutely superior to other nations
Theory of Competitive Advantage
a theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations
Comparative Advantage
relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations
Opportunity Cost
given the alternatives (opportunities), the cost of pursuing one activity at the expense of another activity
Resource (Factor) Endowments
the extent to which different countries possess various resources (factors), such as labor, land, and technology
Factor Endowment Theory (or Heckscher-Ohlin Theory)
a theory that suggests that nations will develop comparison advantage based on their locally abundant factors
Product Life Cycle Theory
a theory that accounts for changes in the patterns of trade over time by focusing on product life cycles
Strategic Trade Theory
a theory that suggests that strategic intervention by government in certain industries can enhance their odds for international success
First-Mover Advantage
advantage that first entrants enjoy and do not share with late entrants
Strategic Trade Policy
a trade policy that conditions or alters a strategic relationship between firms
Theory of National Competitive Advantage of Industries (or ‘Diamond’ Model)
a theory that suggests that the competitive advantage of certain industries in different nationals depends on four aspects that form a diamond
Resource Mobility
the ability to move resources from one part of a business to another
Tariff Barrier
trade barriers that rely on tariffs to discourage imports
Nontariff Barrier (NTB)
trade barriers that rely on non tariff means to discourage imports
Import Tariff
a tax imposed on imports
Deadweight Loss
net losses that occur in an economy as the result of tariffs
Subsidy
government payments to (domestic) firms
Import Quota
restrictions on the quantity of imports
Voluntary Export Restraint (VER)
an international agreement in which exporting countries voluntarily agree to restrict their exports
Local Content Requirement
a requirement that a certain proportion of the value of the goods made in one country originate from that country
Administrative Practices
bureaucratic rules that make it harder to import foreign goods
Antidumping Duty
costs levied on imports that have been ‘dumped’ (selling below costs to ‘unfairly’ drive domestic firms out of business)
Infant Industry Argument
the argument that temporary protection of young industries may help them to attain international competitiveness in the long run
Trade Embargo
politically motivated trade sanctions against foreign countries to signal displeasure
