Key Terms

Question 1

Absolute Advantage

Answer 1

• the ability to produce more efficiently (eg with less labour)

Question 2

Absolute Poverty

Answer 2

• the situation of a household whose income is insufficient to allow it to purchase the minimum bundle of goods and services regarded as necessary for survival

Question 3

Comparative Advantage

Answer 3

• the ability to produce a good relatively more efficiently ( eg at a lower opportunity cost)

Question 4

Law of Comparative Advantage

Answer 4

• a theory arguing that there may be gains from trade arising when countries (or individuals) specialise in the production of goods or services in which they have a comparative advantage.

Question 5

Trading Possibilities Curve

Answer 5

• shows the consumption possibilities under conditions of free trade

Question 6

Terms of Trade

Answer 6

• the ratio of export prices to import prices

Question 7

Globalisation

Answer 7

• a process by which the world’s economies are becoming more closely integrated

Question 8

Multinational Corporation (MNC)

Answer 8

• a company whose production activities are carried out in a number of countries.

Question 9

General Agreement of Tariffs and Trade (GATT)

Answer 9

• the precursor of the WTO, which organised a series of tariff reductions

Question 10

World Trade Organisation (WTO)

Answer 10

• a multilateral body responsible for overseeing the conduct of international trade

Question 11

Sustainable Development

Answer 11

• development which needs the needs of the present without compromising the ability of future generations to meet their own needs

Question 12

Foreign Direct Investment

Answer 12

• investment undertaken in one country by companies based in other countries

Question 13

Emerging Economies

Answer 13

• economies that have experienced rapid economic growth with some industrialisation and characteristics of developed markets

Question 14

Free Trade Area

Answer 14

• a group of countries that agree to trade without barriers between themselves, but having their own individual barriers with countries outside the area

Question 15

Customs Union

Answer 15

• a group of countries that agree to trade without barriers between them, and with a common tariff barrier against the rest of the world

Question 16

Trade Creation

Answer 16

• the replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc

Question 17

Trade Diversion

Answer 17

• the replacement of cheaper imported goods by goods from a less efficient trading partner within a bloc

Question 18

Common Market

Answer 18

• a set of trading agreements in which a group of countries which have common factors in their trading

Question 19

Monetary Union

Answer 19

• a situation in which countries adopt a common currency

Question 20

Economic and Monetary Union

Answer 20

• a set of trading arrangements the same, as for a common market, but in addition having a common currency and a common monetary policy

Question 21

Tariff

Answer 21

• a tax imposed on imported goods

Question 22

Quota/ Voluntary Export Restraint

Answer 22

• an agreement by a country to limit its exports to another country to a given quantity or quota

Question 23

Non-Tariff Barriers

Answer 23

-Measures imposed by a government that have the effect of inhibiting international trade

Question 24

Protectionism

Answer 24

• When government enact policies to restrict the free entry of imports into their country, such as tariffs and quotas

Question 25

Trade Liberalisation

Answer 25

• Reduction or removal of protectionist policies

Question 26

Trade Bloc

Answer 26

• A group of countries that reduce or remove trade barriers between them

Question 27

Preferential Trading Areas (PTA)

Answer 27

• Where tariff and other trade barriers are reduced on some but all goods traded between member countries

Question 28

Economic Union

Answer 28

• where there is a common market with coordination of social, fiscal and monetary policy