definitions

Question 1

arbitrage

Answer 1

buying something in one market and reselling it in another for profit

Question 2

wealth of nations

Answer 2

adam smith; comparing the promotion of free trade with housholds

Question 3

absolute advantage

Answer 3

adam smith; country has absolute advantage when their labor productivity (= output of productivity in numbers in 1 hour) is higher

Question 4

comparative advantage

Answer 4

ricardo; country will export goods and services at lowest opportunitiy costs(=”price” of producing more at expense of other product) and import where opportunity costs are high

Question 5

relative price

Answer 5

ratio of one product price to another

Question 6

production-possibility curve

Answer 6

all combinations of amounts of different products using full resources and max. productivity of country

Question 7

monopolistic competition

Answer 7

1. product differentation
2. internal scale economies
3. easy entry and exit in long run (zero profit)

Question 8

Hekscher-ohlin theory

Answer 8

trade arises from differences in availability of factors and proportions used. opening to trade alters domestic production
- short run; some factors (labor/land) are tied to current lines of production
- long run; factors can move between sectors, leading to change in wage ratest

Question 9

stolper-samuelson theorem

Answer 9

opening to trade changes relative product price where it raises real return (=purchasing power of product related to another) to factor used intensively in rising-rpice industry and lowers real return in factor used intensively in falling-price industry

Question 10

specialized factor pattern

Answer 10

extension of stolper-samuelson in which results of s-s are part of broader pattern where specialization of concentration of production whose relative price is rising, the more the factor stands to gain from a change in product price (and vice versa)

Question 11

factor price equalization theorem

Answer 11

holds that even if factors can move between countries, the wage rate of laborers (of same skill) is equal, as well as the rental return of land (of comparable quality)

Question 12

leontief paradox

Answer 12

paradox that holds that US should have exported capital-intensive goods (according to H-O), while it actually exported labor-intensive goods, which are scarce in US

Question 13

modernization theory

Answer 13

proposes emphasis on process of social and cultural changes that would enable ‘traditional’ developing countries to resemble those of advanced (western) countries and to ‘catch up’ with in terms of wealth, living standards and modernity
–> W. W. Rostow (1960) developed notion of ‘stages of economic growth’ through which all societies passed in transition to modernity; traditional society - preconditions for take-off - take-off - road to maturity - age of consumption (developed)
–> notion of ‘political development’ referring to processes by which conditions of liberal democracy were created and institutionalized

Question 14

underdevelopment theory

Answer 14

process of industrialization was impeded leading to rising gap between parts of world economy
–> Raúl Prebisch highlighted that global economic system is developed to favor powerful ‘center’ in terms of trade (ratio export-import prices)

Question 15

dependency theory

Answer 15

development with reference to location of economies within capitalism and its interactions
–> underdevelopment in periphery as precondition for development in center

Question 16

world systems theory

Answer 16

global economy as compromising different kinds of state - core, semiperiphery, periphery - marked by asymmetries and jostling for economic advantage

Question 17

neo-liberalism

Answer 17

development as national process and failures lie within (incorrect policies). emphasis on ‘depoliticizing’ economic activities

Question 18

neo-statism

Answer 18

notion of ‘developmental state’ in which state was recognized to shape, direct and promote process of economic development. markets are governed, not free

Question 19

environmental kuznets curve

Answer 19

shows how pollution rises during economic growth and when incomes are high,pollution declines because people demand it and governments have (financial) capabilities to lower it

Question 20

tariff

Answer 20

tax on importing goods or service
–> specific tariff= amount of money per unit
–> ad valorem tariff= percentage of estimated market value

Question 21

WTO

Answer 21

overseeing global rules of government policies resting on
1. reduction of trade barriers
2. nondiscrimination
3. no unfair encouragement for exports

Question 22

effects of tariff on imports

Answer 22

1. redistribution of consumers’ income to producers
2. shift to home products (production effect)
3. tax revenue to government
4. discouragement of consumers to buy (consumption effect)
5. loss of national welfare (deadweightloss) seen in production and consumption effect

Question 23

effective rate of production

Answer 23

percent effect of tariff on value added per unit of output

Question 24

monopsony power

Answer 24

when country can effect the price at which foreigners supply import

Question 25

strategic trade policy

Answer 25

situation in which government policy helps its own firms’ strategy to win the game

Question 26

doha round

Answer 26

deadlock; disagreement over agricultural goods, manufacturers and services

Question 27

Regional Trade Agreements

Answer 27

1. free trade area; countries remove (non)tariff barriers to allow free trade of goods and services, but free to decide external policies
2. customs union: members adopt common policies toward import and agree on common external tariff
3. common market; customs union + free flows of FoP’s
4. economic union: full economic integration between members (EU)

Question 28

neofunctionalism

Answer 28

cooperation in one area leads to cooperation in another = spillover effect, but also in reference to the competences

Question 29

intergovernmentalism

Answer 29

argues that integration is still happening within the approval of national governments