Chapter 7: International Trade And Finance Flashcards
Theory of absolute advantage
A country should produce goods that they are most efficient at producing and trade for those where they are not that efficient
Absolute advantage
A country is said to have it if they can produce more goods and services with the same resources than the other one
Imports
Goods and services bought from other countries
Exports
Goods and services sold to other countries
Comparative advantage
A country is said to have it if they can a good at lower opportunity cost than any other country
Why would governments restrict international trade?
To protect domestic industries from foreign multinationals
Ways of international trade restrictions
- Tariffs
- Import quotas
- Subsidies
Tariffs
A tax that is imposed by the importing country when an imported good crosses an international boundary.
It increases the price in the nation for the good
Pros and cons of tariffs
+Increases government revenue
+Domestic producers increase supply
- Less goods are imported
- deadweight loss
Dangers of tariffs
Imports may decrease more than domestic production increases
Infant-industry argument
Protection is necessary for a new industry to enable it to grow and be able to compete in world markets.
-It could limit the industry’s potential to compete
Dumping argument
A foreign firm sells it’s exports at a lower price than production cost
Balance of payments
It measures all intenational economic transactions between residents and non-residents
BOP sub-accounts
- Current account
- Financial account
BOP Current account
Records flows of goods and services
