Economics: International Trade

Question 1

Absolute Advantage

Answer 1

A countries ability to produce a good or service at a lower cost than its trading partner

Question 2

Autarkic price

Answer 2

The price of a good or service in an autarkic economy (closed)

Question 3

Autarky

Answer 3

A state in which a country does not trade with other countries

Question 4

Balance of Payments

Answer 4

A double-entry bookkeeping system that summarizes a countries economic transactions with the rest of for a particular time period

Question 5

Capital Account

Answer 5

A component of the balance of payments account that measures transfers of capital

Question 6

Capital Restrictions

Answer 6

Controls put on foreigners to own domestic assets or or domestic residents to own foreign assets

Question 7

Closed Economy

Answer 7

An economy that does not trade with other economies, an autarkic economy

Question 8

Common market

Answer 8

Level of economic integration that incorporates all aspects of the customs unions and extends by allowing free movement of factors of production among members

Question 9

Comparative Advantage

Answer 9

A countries ability to produce a good or service at a lower relative cost, or opportunity cost than its trading partner

Question 10

Current Account

Answer 10

A component of the balance of payments account that measures the flows of goods and services

Question 11

Customs Union

Answer 11

Extends the free trade area (FTA) by not allowing free movement of goods and services among members, but also creating a common trade of policy against nonmembers.

Question 12

Domestic content provisions

Answer 12

Stipulate that some percentage of the value added or components used in production should be of domestic origin

Question 13

Economic Union

Answer 13

Incorporates all aspects of a common market and in addition requires common economic institutions and coordination of economic policies among members

Question 14

Export Subsidy

Answer 14

Paid by the government to the firm when it exports a unit of a good that is being subsidized

Question 15

Exports

Answer 15

Goods and services that an economy sells to other countries

Question 16

Financial Account

Answer 16

A component of the balance of payments account that records investment flows

Question 17

Foreign Direct Investment

Answer 17

Direct investment by a firm in one country (source county) in productive assets in a foreign country (host country)

Question 18

Foreign portfolio account

Answer 18

Shorter-term investments by individuals and institutional investors (eg pension funds) in foreign financial instruments such as foreign stocks and foreign government bonds

Question 19

Free trade

Answer 19

When there are no government restrictions on a countries ability to trade

Question 20

Free Trade Areas

Answer 20

One of the most prevalent forms of regional integration, in which all barriers to the flow goods and services among members have been eliminated

Question 21

Import License

Answer 21

Specifies the quantity of a good that can be imported into a country

Question 22

Imports

Answer 22

Goods and services that a domestic economy (house holds, firms and government) purchases from other countries.

Question 23

Monetary Union

Answer 23

An economic union in which successive he members adopt a common currency

Question 24

Multinational corporation

Answer 24

A company operating in more than on country or having subsidiary firms in more than one country

Question 25

Net Exports

Answer 25

The difference went the value of a countries exports and the value of its imports (X-M)

Question 26

Open Economy

Answer 26

An economy that trades with other countries

Question 27

Quota Rents

Answer 27

Profits that foreign producers can earn by raising the price of their goods higher than they would without a quota

Question 28

Quotas

Answer 28

Government policies that restrict the quantity of a good that can be imported into a country

Question 29

Small Country

Answer 29

Price takers in the world market who cannot influence the world market price

Question 30

Tariffs

Answer 30

Taxes that a government levies on imported goods

Question 31

Terms of trade

Answer 31

Ratio of price of exports to the price of imports, representing those prices by export and import price indexes

Question 32

Trade Creation

Answer 32

When regional integration results in the replacement of higher domestic production by lower cost imports from other members

Question 33

Trade dispersion

Answer 33

When regional integration results in the replacement of lower cost domestic production by higher cost imports from other members

Question 34

Trade protection

Answer 34

Government policies that impose restrictions in trade, such as tariffs and quotas

Question 35

Trade surplus (deficit)

Answer 35

When the value of exports is greater (less) than the value of imports

Question 36

Voluntary export restraint

Answer 36

A trade barrier which the exporting country agrees to limits its exports of the good to its trading partners to a specified number of units

Question 37

World price

Answer 37

The price prevailing in the world market