Introduction to IB chapter 5 Flashcards
Trade in goods (Merchandise trade)
Sale of physical goods across national borders
Theory of Mercantilism
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
Trade in services
Sale of intangibles across national borders
Trade deficit
An economic situation where a country imports more goods and services than it exports
Balance of Trade
The overall comparison of a country’s imports and exports, resulting in either a trade surplus or deficit
Trade surplus
An economic situation where a country exports more goods and services than it imports
Theory of absolute advantage
The concept that countries benefit from free trade by specializing in the production of goods where they have an absolute advantage
absolute advantage
The ability of one nation to produce a good or service more efficiently than another, resulting in higher productivity
Theory of comparative advantage
A theory that emphasizes the relative advantage one nation has in producing a specific economic activity compared to other nations, rather than absolute productivity
Opportunity cost
The cost of choosing one activity over another, measured by the benefits that could have been gained from the alternative activity
Comparative advantage
The relative advantage a nation has in a particular economic activity when compared to other nations
Resource (factor) endowments
The availability of various resources (factors) like labor, land, and technology in different countries
Factor endowment theory (Heckscher-Ohlin theory)
A theory proposing that countries will develop a comparative advantage based on the abundance of their local resources
Strategic trade theory
A theory proposing that government intervention in specific industries can improve a country’s chances of achieving international competitive success.
Strategic trade policy
Government subsidies designed to support specific industries based on the principles of strategic trade theory
Deadweight loss
The economic inefficiency and net losses that result from the imposition of tariffs
Theory of national competitive advantage of industries (or Porter’s Diamond)
A theory stating that the competitive advantage of specific industries in different countries is determined by four interconnected factors that create a “diamond” structure
Protectionism
Government policies aimed at shielding domestic industries from foreign competition.
Import quotas
Restrictions on the quantity of imports
Subsidies
Government payments to domestic firms
Non-tariff barriers (NTBs)
Government regulations or policies, other than tariffs, implemented to protect domestic industries from foreign competition
Anti-dumping duties
Tariffs imposed on imported goods that are sold at prices below their production costs to prevent unfair competition and protect domestic businesses
Public procurement
The process of government units purchasing goods or services
Local content requirements
Regulations that mandate a certain percentage of a product’s value to be sourced or produced locally
Infant industry argument
The rationale that temporarily protecting emerging industries can help them develop and become internationally competitive over time
