International Trade Flashcards
Trade
The voluntary exchange of goods and services
Absolute advantage
Ability to make good or service with FEWER INPUTS
Comparative Advantage
lower opportunity costs
Sources of comparative advantage
- varied inputs from one nation to the next
- differences in government services and regulations
- investments in technology
Why do people trade?
product differentiation
arbitrage (costs)
The World Price
the price that prevails in the world market for that good
What happens if your domestic price is lower than the world price?
You become an exporter of the good
What happens if your domestic price is higher than the world price?
You become an importer of the good
Unemployment in the short run
people’s jobs are displaced
companies shut down
Unemployment in the long run
displaced workers find jobs with companies that are more efficient
Tariff
tax on goods produces abroad and sold domestically
Who does a tariff hurt and help?
Hurts: consumers
Helps: domestic industry
Import quota
Limit on the quantity of a good that can be produced abroad and sold domestically
Domestic price gets driven above the world price
NAFTA
North American Free Trade Agreement
Removes trade barriers between the US, Mexico, and Canada
Ex: can move Mexican pots across the American border without taxes
GATT
General Agreement on Tariffs and Trade
Promotes free trade, reduces the tariff rate
Now called the WTO (World Trade Organization)
