Theme 4 CC1 Definitions

Absolute advantage

Able to produce a good using fewer resources (cheaper)

Comparative advantage

Able to produce a good at a lower opportunity cost

Specialisation

When households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others

Protectionism

The use of trade barriers such as tariffs to favour domestic suppliers at the expense of foreign suppliers

Tariff

A tax on imports which raises the domestic price of imports and thus restricts demand for them (Import/customs duty)

Quota

A physical limit on the quantity of a good that can be imported

Subsidies

A grant given to firms which lowers the price of a good, usually designed to encourage production or consumption of a good

Non-tariff barriers

Regulations which increase cost to foreign producers and therefore act as barriers to trade

Infant industry

An industry that has a potential comparative advantage but which is currently too underdeveloped to be able to realise this potential

Dumping

The sale of goods at less than cost price by foreign producers in the domestic market

Trade liberalisation

The process of making trade free from protectionist barriers

Pattern of trade

The composition of a country’s imports and exports and the volume of its trade with the rest of the world

Terms of trade

The value of a country’s average export prices relative to their average import prices

Trade barrier

Any measure which artificially restricts international trade

World Trade Organisation (WTO)

International organisation based in Geneva consisting of 166 member states, acts as a forum to negotiate trade agreements and help to settle disputes