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Global Economics
Ch. 5 Definitions
14
Economics
Undergraduate 4
10/14/2007

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Term
free trade
Definition
the absence of barriers to the free flow of goods and services between countries
Term
North American Free Trade Agreement
Definition
NAFTA
Term
David Ricardo
Definition
19th century English economist who advanced comparative advantage theory
Term
Hecksher-Ohlin
Definition
two Swedish economists who refined Ricardo's theory but argued that comparative advantage arises from differences in national factor endowments
Term
new trade theory
Definition
stress that in some cases countries specialize in the production and export of particular products NOT because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms (i.e. aircraft industry)
Term
Paul Krugman
Definition
MIT economist who developed what is known as "new trade theory"
Term
mercantilism
Definition
an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports
Term
zero-sum game
Definition
a situation in which an economic gain by one country results in an economic loss by another
Term
absolute advantage
Definition
production of a product is more efficient that any other country producing it
Term
positive-sum game
Definition
a situation in which all countries can benefit even if some benefit more than others
Term
comparative advantage
Definition
countries should specialize in producing goods and services they can produce most efficiently (Ricardo); PRODUCTIVITY DIFFERENCES ARE IMPORTANT; potential world production is greater with unrestricted free trade than it is with restricted free trade
Term
Leontief Paradox
Definition
postulated that US would export capital-intensive goods and import labor-intensive goods according to Heckscher-Ohlin theory. H-O theory should result in the opposite and therefore the paradox.
Term
economies of scale
Definition
cost advantages associated with large-scale production
Term
Porter's Diamond - See pg. 186 Fig. 5.5
Definition
Factor endowments; Firm strategy/structure/rivalry; demand conditions;related and supporting industries
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