BUS346 Chapter 6 - International Trade Theory

gains from trade

the economic benefits realized when countries specialize in the production/export of goods and services that they can produce most efficiently, while importing goods and services that they cannot produce so efficiently from other nations

free trade

the absence of barriers to the free flow of goods and services between countries

new trade theory

the observed pattern of trade in the world economy may be due in part to the ability of firms in a given market to capture first-mover advantages

factor endowments

a country’s endowment with resources such as land, labor, and capital

mercantilism

an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports

zero-sum game

a situation in which an economic gain by one country results in an economic loss by another

absolute advantage

when a country is more efficient in the production of a product than any other country

constant returns to specialization

the units of resources required to product a good are assumed to remain constant no matter where one is on a country’s production possibility frontier (PPF)

economies of scale

cost advantages associated with large-scale production

balance-of-payments accounts

national accounts that track both payments to and receipts from foreigners

current account

in the balance of payments, records transactions involving the export or import of goods and services

current account deficit

when a country imports more goods, services, and income than it exports

current account surplus

when a country exports more goods, services, and income than it imports

capital account

in the balance of payments, records transactions involving one-time changes in the stock of assets

financial account

in the balance of payments, transactions that involve the purchase or sale of assets