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| A country that can more efficiently produce greater quantity of goods. |
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| Compares opportunity costs to determine who will trade with who, and for what price. |
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| The amount of an exported good that must be given up to obtain one unit of an imported good. |
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| Upward sloping line that shows how much surplus a country will have available to trade at diffrent price points. |
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| Downward sloping line that displays how much shortage a country will need filled at various prices |
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| Productivity theory of comparative advantage. Usually a result of technology gaps between countries. |
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| Factor Abundance Theory of Comparative Advantage. Exerts that relative abundance of factors of production. |
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trade between nations for goods in the same industry
explainded through consumer prfrences
The US imports Stella Artois (delicious) and exports Budwiser (FOUL) |
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| Prefrences Theory of Comparative Advantage |
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| Focuses on demand side economics of trade. Quality or consumer tastes may lead to intraidustry trade. |
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| Human Skills Theory of Production |
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| Emphasizes the differences across countries in skilled and unskilled labor. |
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| Product Life Cycle Theory of Comparative Advantage |
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| Explains how comparative advantage can shift from one country to another over time. The US used to make most of the worlds colored TV's but after some time asia learned how to make TV's too. Eventually Asian cheap labor won out. |
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| Government policy aimed at influencing international trade flows. Usually enacted in the name of protecting domestic producers. |
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| Commercial policy aimed at creating "Fair Trade". Often times argued in response to cheap labor in foreign countries. Also is used as a means of reciprocity to foreign barriers to trade. |
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| The use of trade restrictions or subsidies to allow domestic firms with decreasing costs to gain a greater share of the world market. Increasing-return to scale industries. |
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| Aimed at helping a new industry in a country to be competitive with foreign competition. |
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| Government Revenue Creation |
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| Countries claim that they get a significant source of funds from taxing imports. Tarrifs |
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Government subsidizes industries that may be needed in time of war. Such as shipbuilding.
Must be weighed against the ability to buy and store rations of the goods needed. |
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| Act signed by Hoover, that place thousands of tariffs on imports in the name of domestic protection. Other countries retaliated and imposed tariffs, grinding international trade to a halt. |
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| limiting the importation of goods based on absolute number of goods. |
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| limiting the number of goods that can be imported in terms of monetary value. |
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| Barrier to trade that requires the government to go with domestic producers over foreign producer regardless of price. |
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| fundamental disequillibrum |
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| a permanent change in supply or demand of a currency in a fixed exchange rate. |
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| based all currencies on gold |
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| created to help finance economic development in poor countries. Raises funds through bonds. |
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| International Monetary Fund |
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| created to supervise exchange-rate practices of member countries and to encourage free convertibility of any national money into the monies of other countries. Also lends money to countries that are experiencing problems meeting international debt payments. |
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| Foreign exchange market intervention |
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| government buying and selling of currencies to achieve a target exchange rate |
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| The Exchange rate is adjusted periodically by small amounts at a fixed, pre-announced rate or in response to certain indicatiors (such as inflation differentials against major trading partners) |
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| The exchange rate is maintained witin certain fluctuation margins around a central rate that is periodically adjusted at a fixed pre-announced rate or in response to certain indicators |
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| The monetary authority (usually a central bank) influences the exchange rate through active foreign exchange market intervention with no pre-announced path for the exchange rate. |
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| The exchange rate is market determined and any inervention is aimed at moderating fluctuations rather than at determining the level of the exchange rate |
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| Either anouter country's currency circulates as the legal tender or the country belongs to a monetary union where the legal tender is shared by the members (euro) |
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| A fixed exchange rateis established by a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate. new issues of domestic currency are typically backed in some fixed ration (like 1 to 1) by additional holdings of the key foreign currency |
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| The exchange rate is fixed against a major currency or some basket of currencies. Active intervention may be required to maintain the target pegged rate. |
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| The exchange rate fluctuates around a fixed central target rate Such target zones allow for a moderate amount of exchange-rate fluctuation while tying the currency to the target central state |
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