International Trade Flashcards
Exports
Goods and Services that are produced and sold to other nations
Imports
Goods and Services that one country buys from another
Law of Comparative Advantage
The idea that a nation is better off when it produces goods and services for which they have a comparative advantage
Absolute Advantage
The ability of one person or nation to produce a particular good at a lower cost than another person or nation
Comparative Advantage
The ability of one person or nation to produce a good at a lower opportunity cost than that of another person or nation
Opportunity Cost
The best alternative you give up when making a choice
Specialization
When countries focus on producing good/services that they are good at
Production Possibilities Graph
Graph that shows alternative ways to use an economy’s resources
Production Possibilities Frontier
The line on the production possibilities graph that shows the maximum possible output
Efficiency
Using resources in such a way as to maximize the production of goods and services
Underutilization
Using fewer resources than an economy is capable of using
Unemployment
Inability to adapt and find a new job
Relocation
Moving to where current skills meet current jobs
Retraining
Gaining new human capital to meet the demands of specialized labor markets
Trade Barrier
A means of preventing a foreign product or service from freely entering a nation’s territory
Quotas, Tariffs, Voluntary Export Restraints
3 Main Types of Trade Barriers
Import Quota
A law limiting the amount of a good that can be imported
Voluntary Export Restriction (VER)
A self-imposed limitation on the number of products shipped to a particular country
Tariff
Tax placed on imported goods
Customs Duty
A tax on certain items purchased abroad
Trade War
A cycle of increasing trade restrictions
Protectionism
The use of trade barriers to protect a nation’s industries from foreign competition
Infant Industries
New Industries
WTO (World Trade Organization)
Founded in 1995 to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes
Free Trade Zones
Regions where a group of countries has agreed to reduce trade barriers among themselves
NAFTA
North American Free Trade Agreement–1993 Lowered trade barriers between Canada, U.S., and Mexico
European Union (EU)
A regional trade organization made up of European nations
Euro
A single currency that replaces individual currencies among members of the EU
Foreign Exchange Rate
The value of one country’s currency in relation to anothers
Appreciation
An increase in the value of a currency
Depreciation
A decrease in the value of a currency
Foreign Exchange Market
A network of about 2,000 banks and other financial institutions
Fixed Exchange Rates
Rate of exchange that doesn’t change–commonly used when we operated on the gold standard
Flexible Exchange Rates
Exchange rate determined by supply and demand
Balance of Trade
The relationship between a nation’s imports and its exports
Trade Deficit
When the value of products imported is greater than the value of goods exported
Trade Surplus
When the value of products imported is less than the value of goods exported
