Final Exam (c.7)

Question 1

comparative advantage

Answer 1

The ability of a country or firm to produce a particular good or service more efficiently than it can produce other goods or services, such that its resources are most efficiently employed in this activity. The comparison is to the efficiency of other economic activities that the actor might undertake given all the products it can produce—not to the efficiency of other countries or firms.

Question 2

absolute advantage

Answer 2

the ability of a country or firm to produce more of a particular good or service than other countries or firms can produce with the same amount of effort or resources

Question 3

Neo-mercantilism

Answer 3

a belief that national economic policy should encourage exports and discourage imports, and that the country should aim to run a trade surplus.

Question 4

Heckscher-Ohlin trade theory

Answer 4

theory that a country will export goods that make intensive use of the factors of production in which it is well endowed (ex. labor-rich country will export goods that make intensive use of labor)

Question 5

protectionism

Answer 5

imposition of barriers to restrict imports

Question 6

trade barriers

Answer 6

government limitations on the international exchange of goods (ex. tariffs, quotas)

Question 7

tariff

Answer 7

a tax imposed on imports. raise the domestic price of an imported good and may be applied for the purpose of protecting domestic producers from foreign competition

Question 8

quantitative restriction (quota)

Answer 8

a limit placed on the amount of a particular good that is allowed to be imported and sold domestically

Question 9

non tariff barriers to trade

Answer 9

obstacles to imports other than trade barriers. (ex. restrictions on the number of products that can be imported, regulations favoring domestic over imported goods)

Question 10

Stolper-Samuelson theorem

Answer 10

theorem that trade protection benefits the scarce factor of production. from the Heckscher-Ohlin theory; if a country imports goods that makes intensive use of its scarce factor, then limiting imports will help that factor. (ex. in a labor-scarce country, labor benefits from protection and loses from trade liberalization.

Question 11

Ricardo-Viner (specific-factors) model

Answer 11

model of trade relations that emphasizes the sector in which factors of production are employed rather than the nature of the factor itself. (different from Heckscher-Ohlin, which focuses on the nature of the factor)

Question 12

reciprocity

Answer 12

in international trade relations, a mutual agreement to lower tariffs and other barriers to trade. involves an implicit or explicit arrangement for one government to exchange trade-policy concessions with another.

Question 13

most-favored nation (MFN) status

Answer 13

a status established by most modern trade agreements guaranteeing that the signatories will extend to one another any favorable trading terms offered in agreements with third parties.

Question 14

World Trade Organization (WTO)

Answer 14

institution created in 1995 to replace the GATT and govern international trade regulations

Question 15

General Agreement on Tariffs and Trade (GATT)

Answer 15

international institution created in 1947 in which member states committed to reducing trade barriers and providing similar trading conditions to all other members

Question 16

regional trade agreements (RTAs)

Answer 16

agreements among three or more countries in a region to reduce the trade barriers to trade amongst themselves