Global Economics terms Flashcards
free trade
absence of government intervention of any kind in international trade
absolute advantage
the ability of one country to produce a good using fewer resources than another country
comparative advantage
a situation where one country has a lower opportunity cost in the production of a good than another country
theory of comparative advantage
as long as an opportunity costs in two or more countries differ, it is possible for all countries to benefit from specialisation and trade according to their comparative advantage
trade protection
government intervention in international trade through the imposition of trade restrictions to prevent free entry of imports into a country
tariff
tax on imported goods
import quota
a legal limit to the quantity of a good that can be imported over a particular time period
export subsidy
subsidy paid for each unit of the good that is exported
administravite barriers
administrative procedures that countries may use to prevent the free flow of imports into a country
anti-dumping
argument that justifies trade protection if a trading partner sells a good in international markets at price below the cost of producing it
unfair competition
unfair increase in country’s exports at the expense of other countries
preferential trade agreement
agreement between two countries to lower trade barriers on given products in trade between them
trading bloc
group of countries that agreed to reduce trade barriers to encourage free trade and cooperation between them
free trade area
group of countries that agreed to remove trade barriers between themselves
custom union
free trade area than in addition adopts a common policy towards all non-member countries
common market
custom union without restrictions on movements of any factors of production between member countries
trade creation
replacement of higher cost products by lower cost imports
traded diversion
replacement of lower cost products by higher cost imports
monetary union
economic integration involving the adoption of a single currency, common monetary policy and single central bank by group of countries
exchange rate
value of one currency expressed in terms of another
floating exchange rate system
exchange rates are determined by market forces of demand and supply with no central bank intervention
fixed exchange rate system
exchange rates are fixed by the central bank of each country at a particular level and are not allowed to respond to currency supply and demand
devaluation
decrease in fixed level of exchange rates by the central bank
revaluation
increase in fixed level of exchange rates by the central bank
managed exchange rate system
exchange rates are free to float to their market levels over the long term, but central banks periodically intervene in order to stabilise them over a short term
balance of payments
record of all transactions between the residents of the country and the residents of all other countries
credits
payments received from other countries
debits
payments made to other countries
speculation
buying and selling currencies to make a profit from changes in exchange rates
expenditure reducing policies
reducing imports by lowering aggregate demand
expenditure switching policies
reducing imports by switching consumption away from imports to domestically produced goods
economic development
a process where increases in real per capita output and incomes are accompanied by improvements in standards of living and reduction of poverty
poverty trap
an economic system that requires a significant amount of capital in order to earn enough to escape poverty
capital flight
large scale transfer of private owned financial capital to another country resulting from fear and uncertainty of holding domestic assets
informal economy
economic activities that are unregistered and legally unregulated
import substitution
growth and trade strategy where a country begins to manufacture simple consumer goods for the domestic market to promote its domestic industry, it depends on protective measures that prevent the entry of imports that compete with domestic producers
export promotion
growth and trade strategy where a country expands exports
social enterprise
a commercial organisation that aims to achieve particular social goals to improve people’s well-being
trade liberalisation
elimination of trade barriers to achieve free trade
foreign direct investment
investment by firms based in one country in production facilities in another country
multilateral development assistance
lending to developing countries with rates of interest and repayment periods determined in the market
microfinance
loans in small amounts to people who do not normally have access to credit due to a lack of collateral
market-oriented policies
policies, in which government intervention is limited, economic decisions are made mainly by private decision-makers and the market has significant freedom to determine resource allocation
interventionist policies
policies based on government intervention in the market
economic inequality
the degree to which people differ in their ability to satisfy their economic needs
absolute poverty
a situation, where a person does not have enough income to satisfy their economic needs
relative poverty
comparison of income of individuals in society with median incomes
transfer payments
payments made by the government to individuals for the purpose of redistributing income away from those who work and pay taxes to those who need financial assistance
universal basic income
a sum of money residents of a country would receive regardless of any other income they may have
