definitions Flashcards
arbitrage
buying something in one market and reselling it in another for profit
wealth of nations
adam smith; comparing the promotion of free trade with housholds
absolute advantage
adam smith; country has absolute advantage when their labor productivity (= output of productivity in numbers in 1 hour) is higher
comparative advantage
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
relative price
ratio of one product price to another
production-possibility curve
all combinations of amounts of different products using full resources and max. productivity of country
monopolistic competition
- product differentation
- internal scale economies
- easy entry and exit in long run (zero profit)
Hekscher-ohlin theory
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
stolper-samuelson theorem
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
specialized factor pattern
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)
factor price equalization theorem
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)
leontief paradox
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
modernization theory
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
underdevelopment theory
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)
dependency theory
development with reference to location of economies within capitalism and its interactions
–> underdevelopment in periphery as precondition for development in center
world systems theory
global economy as compromising different kinds of state - core, semiperiphery, periphery - marked by asymmetries and jostling for economic advantage
neo-liberalism
development as national process and failures lie within (incorrect policies). emphasis on ‘depoliticizing’ economic activities
neo-statism
notion of ‘developmental state’ in which state was recognized to shape, direct and promote process of economic development. markets are governed, not free
environmental kuznets curve
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
tariff
tax on importing goods or service
–> specific tariff= amount of money per unit
–> ad valorem tariff= percentage of estimated market value
WTO
overseeing global rules of government policies resting on
1. reduction of trade barriers
2. nondiscrimination
3. no unfair encouragement for exports
effects of tariff on imports
- redistribution of consumers’ income to producers
- shift to home products (production effect)
- tax revenue to government
- discouragement of consumers to buy (consumption effect)
- loss of national welfare (deadweightloss) seen in production and consumption effect
effective rate of production
percent effect of tariff on value added per unit of output
monopsony power
when country can effect the price at which foreigners supply import
strategic trade policy
situation in which government policy helps its own firms’ strategy to win the game
doha round
deadlock; disagreement over agricultural goods, manufacturers and services
Regional Trade Agreements
- free trade area; countries remove (non)tariff barriers to allow free trade of goods and services, but free to decide external policies
- customs union: members adopt common policies toward import and agree on common external tariff
- common market; customs union + free flows of FoP’s
- economic union: full economic integration between members (EU)
neofunctionalism
cooperation in one area leads to cooperation in another = spillover effect, but also in reference to the competences
intergovernmentalism
argues that integration is still happening within the approval of national governments
