Term
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Definition
| the exchange of goods/services across national borders |
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Term
| Theoretical Bases for Trade between Countries |
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Definition
-Absolute Advantage (Adam Smith)
-Comparative Advantage |
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Term
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Definition
when one country is more productive than another country in several activities
-oldest international trade theory studied (Adam Smith is an advocate) |
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Term
| Example of Absolute Advantage |
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Definition
-Assume England can produce more textiles than Spain and Spain can produce more wine than England
-Both countries can gain from one another if each produces what they produce better (i.e. England produces textiles and Spain produces wine) |
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Term
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Definition
| the ability of a country to produce a good/service at a lower opportunity cost than anyone else |
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Term
| Example of Comparative Advantage |
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Definition
Assume a lawyer is also extremely proficient at typing (100 wpm). would it be in her best interest to employ one/more secretaries to type her legal documents?
-assume this lawyer bills $200 per hour for her legal work
-it would be in her best interest to employ a secretary to type her legal briefs because each hour she spends typing costs her $200 in lost revenue (opp. cost)
-because secretaries usually work for much less than $200 an hour, the lawyer's net revenues will increase in result of this action |
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Term
| Steps in determining comparative advantage |
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Definition
1. calculate the opportunity costs of producing both goods in both countries (quantity of good given up per unit of good gained)
2.Compare opportunity costs between countries
3.the country with the lower opp. cost in a good will specialize in/export that good to the other country |
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Term
| China vs. US comparative advantage example: |
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Definition
-assume the US can produce 90 tons of food, and 30 tons of clothing
-assume China can produce 15 tons of food and 15 tons of clothing
--to determine the opportunity cost of food in the US, divide clothing by food or 30/90=0.333
--clothing in US: 90/30=3
--to determine the opp. cost of food in China, divide 15/15=1
-clothing in China: 15/15=1
-THEREFORE the US should produce food, because its opp. cost is lower than China's, and China should produce clothing |
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Term
| In the China vs US example, who gains/favors and who loses/opposes? |
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Definition
Gainers/Favorers:
-Consumers in US
-farmers in US
-Consumers in China
-Clothing manufacturers in China
Losers/Opposers:
-US clothing manufacturers
-Chinese farmers |
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Term
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Definition
a tax imposed on a good when its imported
-restrict trade between countries by increasing the price of imported goods |
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Term
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Definition
a quantitative restriction on the import of a good that limits the maximum quantity that may be imported in a given period
-restrict trade between countries by setting quantitative limits on imported goods |
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Term
| Voluntary Export Restraint |
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Definition
like a quota that is allocated to the foreign exporter of the good
-restrict trade in the same way as a quota, administered by the exporting, rather than the importing, country |
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Term
| Argument for Government Protection from Trade |
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Definition
| government protection from trade is inherently anti-consumer, so opponents to trade must use other arguments to justify their positions |
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Term
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Definition
| when a foreign firm sells its exports at a lower price than its cost of production |
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Term
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Definition
| a country must protect industries that produce defense equipment and armaments and those on which the defense industry rely for their raw materials and other intermediate inputs |
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Term
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Definition
| the argument that it is necessary to protect a new industry to enable it to grow into mature industry that can compete in world markets |
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