The Global Economy Flashcards
Free Trade
free trade refers to the absence of government intervention of any kind of international trade, so trade takes place without any restrictions between individuals, firms or governments of different countries
Specialisation
occurs when an individual, firm or country concentrates production on one or a few goods and services
absolute advantages
when a country is able to produce a good using fewer resources than another country
comparative advantage
when a country has a lower opportunity cost in the production of a good than another country
factor endowments
quality and quantity of factors of production, and levels of technology
trade liberalisation
the removal or reduction of barriers on the free exchange of goods between nations
trade protection
government intervention in international trade through imposition of trade restrictions preventing free entry of imports into a country
tariff
taxes on imported goods, a.k.a. ‘customs duties’
quota
legal limit to the quantity of a good that can be imported over a particular period of time
export/ production subsidy
payment by the government to a firm for each unit of output produced/exported (depending if its production or export subsidy)
administrative barriers
trade protection measures taking the form of administrative procedures to prevent free flow of imports into a country. Often considered a form of ‘hidden’ trade protection. Imposing obstacles on imports to reduce their quantity.
infant industry
a new domestic industry that has not had time to establish itself and achieve economies of scale (had not time to become efficient producers)
dumping
practice of selling a good in international market at a price lower than its production cost
diversification
change involving greater variety
unfair competition
practices that countries may use in order to gain a competitive advantage over other countries in order to unfairly increase their exports at the expense of other countries.
economic integration
economic co-operation between countries and co-ordination of their economic policies
Preferential Trade Agreement (PTA)
agreement between two or more countries to lower trade barriers on particular products in trade between each other.
bilateral trade agreement
agreement between two countries
multilateral trade agreement
agreement between many countries
regional trade agreement
trade agreements between a group of countries that are within a geographical region
trading bloc
group of countries that have agreed o reduce tariff and other barriers to trade for the purpose of encouraging free or freer trade and co-operation between them.
Free Trade Area (FTA)
group of countries that agree to gradually eliminate trade barriers between themselves
customs union
group of countries with FTA requirements and in addition adopt a common policy towards all non-member countries
common market
group of countries that continue to have common external policy (as in a customs union) and in addition, they agree to eliminate all restrictions on movements of any factors of production within them.
trade creation
situation where higher cost products (imported or domestically produced are replaced by lower cost imports)
trade diversion
situation where lower cost imports are replaced by higher cost imports from a member after the formation of the bloc.
monetary union
further integration that a common market and occurs when the member countries of a common central bank adopt a common currency and a common central bank responsible for monetary policy
exchange rate
value of one currency expressed in terms of another $1 = £X
floating exchange rate system
in a floating exchange rate system, the equilibrium exchange rate are determined by eh demand and supply at the point where the quarry of a currency demanded equals quantity supplied, without any government or central bank intervention
appreciation
increase in the value of a currency in a floating exchange rate system
depreciation
a fall in the value of a currency in a floating exchange rate system
remittances
transfer of Monet from one country to another, in most cases by foreign workers who send money from their earnings in the country of residence to their family back home.
