Introduction to IB chapter 5

Question 1

Trade in goods (Merchandise trade)

Answer 1

Sale of physical goods across national borders

Question 2

Theory of Mercantilism

Answer 2

The idea that a nation can increase its wealth by exporting more than it imports, thereby accumulating gold and silver as a measure of wealth

Question 2

Trade in services

Answer 2

Sale of intangibles across national borders

Question 2

Trade deficit

Answer 2

An economic situation where a country imports more goods and services than it exports

Question 3

Balance of Trade

Answer 3

The overall comparison of a country’s imports and exports, resulting in either a trade surplus or deficit

Question 3

Trade surplus

Answer 3

An economic situation where a country exports more goods and services than it imports

Question 4

Theory of absolute advantage

Answer 4

The concept that countries benefit from free trade by specializing in the production of goods where they have an absolute advantage

Question 5

absolute advantage

Answer 5

The ability of one nation to produce a good or service more efficiently than another, resulting in higher productivity

Question 6

Theory of comparative advantage

Answer 6

A theory that emphasizes the relative advantage one nation has in producing a specific economic activity compared to other nations, rather than absolute productivity

Question 7

Opportunity cost

Answer 7

The cost of choosing one activity over another, measured by the benefits that could have been gained from the alternative activity

Question 7

Comparative advantage

Answer 7

The relative advantage a nation has in a particular economic activity when compared to other nations

Question 8

Resource (factor) endowments

Answer 8

The availability of various resources (factors) like labor, land, and technology in different countries

Question 9

Factor endowment theory (Heckscher-Ohlin theory)

Answer 9

A theory proposing that countries will develop a comparative advantage based on the abundance of their local resources

Question 10

Strategic trade theory

Answer 10

A theory proposing that government intervention in specific industries can improve a country’s chances of achieving international competitive success.

Question 11

Strategic trade policy

Answer 11

Government subsidies designed to support specific industries based on the principles of strategic trade theory

Question 12

Deadweight loss

Answer 12

The economic inefficiency and net losses that result from the imposition of tariffs

Question 13

Theory of national competitive advantage of industries (or Porter’s Diamond)

Answer 13

A theory stating that the competitive advantage of specific industries in different countries is determined by four interconnected factors that create a “diamond” structure

Question 14

Protectionism

Answer 14

Government policies aimed at shielding domestic industries from foreign competition.

Question 14

Import quotas

Answer 14

Restrictions on the quantity of imports

Question 15

Subsidies

Answer 15

Government payments to domestic firms

Question 16

Non-tariff barriers (NTBs)

Answer 16

Government regulations or policies, other than tariffs, implemented to protect domestic industries from foreign competition

Question 17

Anti-dumping duties

Answer 17

Tariffs imposed on imported goods that are sold at prices below their production costs to prevent unfair competition and protect domestic businesses

Question 18

Public procurement

Answer 18

The process of government units purchasing goods or services

Question 19

Local content requirements

Answer 19

Regulations that mandate a certain percentage of a product’s value to be sourced or produced locally

Question 20

Infant industry argument

Answer 20

The rationale that temporarily protecting emerging industries can help them develop and become internationally competitive over time