Chapter 5 Peng

Question 1

Absolute Advantage

Answer 1

The economic advantage one nation enjoys that is absolutely superior to other nations.

Question 2

Administrative Policy

Answer 2

Bureaucratic rules that make it harder to import foreign goods.

Question 3

Antidumping Duty

Answer 3

Tariffs levied on imports that have been “dumped” (selling below costs to “unfairly” drive domestic firms out of business).

Question 4

Balance of Trade

Answer 4

The aggregation of importing and exporting that leads to the country-level trade surplus or deficit.

Question 5

Classical Trade Theories

Answer 5

The major theories of international trade that were advanced before the 20th century 1. which consist of

(1) mercantilism
(2) absolute advantage and
(3) comparative advantage.

Question 6

Comparative Advantage

Answer 6

Relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.

Question 7

Dead Wight Cost (also called Dead Weight Loss)

Answer 7

Net losses that occur in an economy as a result of tariffs.

Question 8

Export (X)

Answer 8

Selling abroad.

Question 9

Factor Endowment

Answer 9

The extent to which different countries possess various factors of production such as labor, land, and technology

Question 10

Factor Endowment Theory (or Herchscher-Ohlin theory)

Answer 10

A theory that suggests that nations will develop comparative advantages based on their locally abundant factors.

Question 11

First-mover advantage

Answer 11

Advantage that first movers enjoy and do not share with late entrants. Advantage that first movers enjoy and do not share with late entrants.

Question 12

Free Trade

Answer 12

The idea that free market forces should determine how much to trade with little or no government intervention.

Question 13

Import (M)

Answer 13

Buying from abroad.

Question 14

Import Quota

Answer 14

Restriction on the quantity of imports (goods bought from abroad).

Question 15

Import Tariff

Answer 15

A tax imposed on imports.

Question 16

Infant Industry Argument

Answer 16

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 be crushed by mature foreign rivals.

Question 17

Local Content Requirement

Answer 17

A requirement stipulating that a certain proportion of the value of the goods made in one country must originate from that country.

Question 18

Merchandise

Answer 18

Tangible products being traded.

Question 19

Modern Trade Theories

Answer 19

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.

Question 20

Nontariff Barrier (NTB)

Answer 20

Trade barrier that relies on nontariff methods to discourage imports.

Question 21

Opportunity Cost

Answer 21

Cost of pursuing one activity at the expense of another activity, given the alternatives (other opportunities).

Question 22

Product Life Cycle Theory

Answer 22

A theory that accounts for changes in the patterns of trade over time by focusing on product life cycles.

Question 23

Protectionism

Answer 23

The idea that governments should actively protect domestic industries from imports and vigorously promote exports.

Question 24

Resource Mobility

Answer 24

Assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry.

Question 25

Services

Answer 25

Intangible services being traded.

Question 26

Strategic Trade Policy

Answer 26

Government policy that provides companies a strategic advantage in international trade through subsidies and other supports.

Question 27

Strategic Trade Theory

Answer 27

A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success.

Question 28

Subsidy

Answer 28

Government payment to domestic firms.

Question 29

Tariff Barrier

Answer 29

Trade barrier that relies on tariffs to discourage imports.

Question 30

The Theory of Absolute Advantage

Answer 30

A theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage.

Question 31

The Theory of Comparative Advantage

Answer 31

A theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.

Question 32

The Theory of Mercantilism

Answer 32

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.

Question 33

Theory of National Competitive Advantage of Industries (“The Diamond Theory”)

Answer 33

A theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a “diamond.”

Question 34

Trade Deficit

Answer 34

An economic condition in which a nation imports more than it exports.

Question 35

Trade Embargo

Answer 35

Politically motivated trade sanctions against foreign countries to signal displeasure.

Question 36

Trade Surplus

Answer 36

An economic condition in which a nation exports more than it imports.

Question 37

Voluntary Export Constraint (VER)

Answer 37

An international agreement that shows that exporting countries voluntarily agree to restrict their exports.