Topic 2 (Chapter 3) Flashcards
Pros of free trade
- keeps prices down
- inspires innovations
- access to foreign investments
Cons of free trade
- domestic workers can lose their jobs
- workers may have to accept pay cuts
- loss of service jobs
Free trade
The movement of goods and services among nations without political or economic barriers
Comparative advantage theory
The theory that states that a country should sell to other countries, those products that it produces most effectively and efficiently and buy from other countries products that it cannot produce
Absolute advantage
Exist when a country has a monopoly on producing a specific product, or is able to produce it more efficiently than all other countries
Balance of trade
The total value of a nations exports compared to a Imports over a particular.
Trade surplus
A favorable balance of trade: occurs when the value of a country exports exceeds that of its imports
Trade deficit
Unfavorable balance of trade: value of countries imports exceeds that of its exports
Balance of payments
The difference between money coming into a country and money leaving a country
Dumping
Selling products in a foreign country at lower prices than those charged in the producing country
Licensing
A global strategy in which a firm allows a foreign company (licensee) to produce its product in exchange for a fee
Contract manufacturing
A foreign companies, production of private label goods to which a domestic company then attaches it’s brand name or trademark
Joint venture
A partnership in which two or more companies join to undertake a major project
Strategic alliance
A long term partnership between two or more companies established to help each company build competitive market advantages
Foreign direct investment
The buying of permanent property and businesses in foreign nations
