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| deals with flows across national boundaries of goods, services, capital and labor. It is the conduct of trade, rthat than the benefits that flow from it, that distinguishes international from domestic transactions. |
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| the price of one currency in terms of another |
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| a currency of sixteen european countries |
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| are governmental measures designed to influence the country's international transactions. |
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| describes a process by which a country, its businesses and citizens, become integrated into the global economy. |
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| Manifestation of Globalization |
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| international trade and direct foreign investment are expanding faster than global output |
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| divided into export industries, import industries, and non traded goods |
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| countries tend to specialize in different type of products |
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| World Trade Organization (WTO) |
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| Made up of 153 countries that account for most of world trade, this multilateral trade organization provides a framework for trade negotiations and lays down ground rules for the conduct of international trade. |
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| International Monetary Fund (IMF) |
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| With 185 member countries, the IMF focuses primarily on international monetary matters. It makes financial resources available to members in need and supervises the international currency system. |
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| This international financial institution offers loans for development of LDCs from subscription capital as well as from funds raised on the worlds' capital markets. It is NOT and international central bank |
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| This is a cohesive regional grouping of 27 European countries with a population of 450 million and a GDP equal to that of the U.S. Its is headquartered in Brussels, Belgium. Sixteen of its members adopted a common currency called the euro and established a common central bank. |
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| consists of ten major industrial countries. |
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| consists of major industrial and developing countries |
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| The United Nations Conference on Trade and Development |
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| The U.N. organization concerns international matters of trade and development. |
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| Organization for Economic Cooperation and Development (OECD) |
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| Consists of 30 developed countries. |
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| regional trade agreement with Canada, Mexico and United States |
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| when a country produces a all their goods cheaper than another country. |
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| refers to the degree of advantage. the degree of advantage is different between two commodities. |
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| the price ratio of one good to the other wihtin each country, is a guide to comparative advantage. It requires only a comparison of the internal cost ratios between the two countries. |
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| Comparative advantage determines the direction of trade and the limits to mutually beneficial trade. |
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| calls for promotion of exports to acquire gold. Trade cannot benefit both countries |
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| Demand conditions determine the terms of trade or where the exchange ratio will settle |
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| the export price divided by the import price. |
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| means that the country produces only its export good and none of its imported commodity. |
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| measured in currency, is the inverse of productivity. |
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| Relative Opportunity Cost |
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| shows the direction of trade and the limits to mutually beneficial exchange |
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| Sustainable Exchange Rate |
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Definition
| comparative advantage can be expressed in terms of both countries, thereby embodying labor as well as other production costs. This yields the limits to a sustainable exchange rate. |
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| Exchange Rate and Wage Ratios |
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Definition
| expressed in terms of currencies, comparative advantage yields the limits to a sustainable exchange rate. When expressed in terms of labor production costs, comparative advantage yields the limits to the wage ratio between the two countries. |
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| Trade and Income Distribution |
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Definition
| trade redistributes income in society |
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| Trade is anti-inflationary when the prices of imports as well as exports are considered. |
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| means that cost per unit of output declines as the scale of operations expands. |
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| an industry structure characterized by many firms producing differentiated products. |
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| an exchange between countries of totally different products. It is explained by the factor endowment model. |
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| an exchange between countries of highly similar goods. It is explained by economies of scale model and yields a dual benefit to consumer:cheaper goods and greater variety. |
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| Comparative advantage of a country changes as its factor endowment and/or technology change. |
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| Japan's postwar development is an example of the dynamic nature of comparative advantage: it changed from labor-intensive to capital-intensive to high technology products. |
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| tariff that's high enough to keep out all imports of the product |
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| a tariff calculated by the percent of the price |
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| fixed number of dollars per unit of product |
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| a tariff that is a combination of percentage and a fixed number of dollars |
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| tax levied on commodities when it crosses an international border |
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| most tariffs provide protection to the domestic industry and yield government revenue |
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Term
| Small Country Tariff Effect on Trade |
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Definition
| Domestic prices rise by the full amount of the tariff. Does not effect its terms of trade. |
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| Large Country Tariff Effect on Trade |
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Definition
| Domestic prices rise by a portion of its tariff. There is a decline in foreign export price. Its tariff improves its terms of trade by the amount of the duty paid by foreigners. |
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| A tariff redistributes income from consumers to producers and to the government. In a small country, it causes a net deadweight loss in real income. |
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| the tariff rate that maximizes the difference between the gain from improved terms of trade and the loss from reduced volume of trade. For a small country, the optimum tariff is zero because there is no improvement in the terms of trade, |
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| Effective And Nominal Tariff |
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Definition
| protection exceeds or falls short of the nominal rate if the tariff rate of the final product exceeds or falls short of the tariff rate on imported inputs |
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| steep escalation of effective rates in industrial countries by degree of processing discourages industrialization of developing countries |
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| sets an absolute limit on the quantity of a product that may enter the country. |
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| Protection of Inputs Harms Output |
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| the development of domestic production of inputs via protection of intermediate inputs reduces the effective protection on the final product. |
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| exports may be harmed by protection of intermediate inputs |
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| argument for protection suggest that an industry should be protected to allow it to grow in size at which point it can compete. In practice, it is often abused. |
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| a rate that would equalize wage rates across countries. It makes no allowance for productivity differentials; hence there is nothing scientific about it. |
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| Petition of the Candlemakers |
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| satire about the cost of keeping out cheap imports |
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| tariff is an inferior instrument to redistribute income, promote mobility, or attain other social goals. Domestic Subsidies and taxes are better instruments. |
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| a global organization that sets ground rules for international trade and provides a framework for liberalizing trade One of its rules is non-discrimination between sources of supply know as the MFN. |
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| involves two or more countries abolishing trade restrictions among themselves and setting up a common and uniform tariff against outsiders. |
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| involves two or more countries abolishing trade restrictions among themselves but each keeping its own tariff rates against outsiders. |
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| Both CUs and FTAs discriminate against nonmembers, but are exceptions to the MFN. |
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| a displacement of inefficient production in a member country by imports from another member in a CU. |
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| a displacement of imports in a CU from a nonmember by imports from a member country. |
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| one tariff rate imposed up to a certain quantity of imports and a higher rate on imports above that level. |
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| Because it make the commodity scarce, a quota raises its price in the importing country in a way similar to a tariff. |
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| percentage increase in price of a quota |
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| the price increase cause by the quota times the quantity of imports admitted under the quota. Unless the government auctions the imports licenses the rents accure to the importers |
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| Equivalence of Tariff and Quota |
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Definition
| demand and supply are stationary, perfect competition exists in all markets and the government auctions the import licenses. |
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| causes more harm to the economy under a quota than under a tariff |
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Term
| A VER (Voluntary Export Restraint) |
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Definition
| an agreement between and exporting and importing country of a certain commodity, under which the first agrees to restrict exports to the second country. Because it restricts supply, it raises the price in the importing country. |
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| describes a tendency by exporters to switch to a higher-quality version of the product. It is caused by imports quotas and/or VERs. |
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| a cartel of oil exporting countries |
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| between textile producing and consuming countries to restrict trade in textiles. It was abolished on January 1st 2005 |
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| a group of corporations located in different countries or a group of governments that agree to restrict trade in a commodity. It includes only suppliers. |
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| Local Content Requirements |
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Definition
| specify a minimum portion of the value of a product that must be produced domestically |
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| consist of a tax on import of a commodity and a rebate (subsidy) on its export, which equal the domestic indirect taxes. |
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| the sale of a commodity abroad at a price lower than what it fetches in the home country. Often it is a result of a monopolist discriminating between domestic and foreign markets. |
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| the price differential between home and foreign markets |
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| a special duty that importing country may impose to offset dumping |
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| a payment by a government to a domestic firm for each unit of the product that is exported |
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| a special tariff the importing country may impose to offset a subsidy by the exporting country. Its is distinguishable from antidumping duty in that it is limited to offsetting a government subsidy. |
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| consists of government taxes and/or subsidies designed to increase the global market share of the country's own oligopolistic firms, so as to increase their oligopoly profit at the expense of foreign firms. |
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| a market structure in which a few firms make up the industry and where economic profits are attained and maintained although strategic trade policy appears attractive, its application is beset with practical problems and render it inoperative. |
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