International Trade Flashcards
Absolute Advantage
Which producer can make more of a certain product in a specified period.
A country has comparative advantage in the production of a good when
it has a lower opportunity cost of producing that good. In turn, the opportunity cost of a good is the number of units of another good that must be given up to produce it.
Opportunity Cost Equation
Opportunity Cost of X = Quantity of Y/Quantity of X
Production Possibilities Frontier
slope tells us how much production of one good changes when we change production of the other good, which basically is the definition of opportunity cost.
Antidumping Argument for Restricting Int’l. Trade
When a domestic firm or organization complains about a foreign firm selling its exports at an unusually low price, it is using the antidumping argument. Dumping occurs when a foreign firm sells its exports at a lower price than its cost of production in an effort to drive domestic firms out of business. Once the domestic industry has been destroyed, the “dumping” country can potentially raise prices and earn higher profits.
National Security Argument for Restricting Int’l Trade.
asserts that a country must protect the industries that produce defense equipment and armaments, and those on which the defense industries rely for their raw materials, like oil and other intermediate inputs.
WTO
I. Facilitates the negotiation of international trade agreements among nations
II. Enforces the rules of trade that nations agree to
III. Settles trade disputes between countries
When a country trades using the theory of competitive advantage:
Only its consumption possibilities curves shifts out
A group of countries that agree to free trade among themselves and a common policy for all other countries is called:
A customs union
A quota:
is a limit on the quantity of a specific good that cn be imported
Most favored nation clause in a trade agreement among nations means that
any tariff reduction given to any member of the group applies to every member
Free trade allows for
Specialization
