Interdependence and Gains from Trade Flashcards

Flashcards based on lecture notes about interdependence and gains from trade.

Specialization and interdependence

Modern economies function based on this.

Increased Productivity

Division of labor and specialization leads to this…

Inward Oriented Trade Strategy

A trade strategy characterized by a bias of trade and industrial policies in favor of domestic production as against foreign trade.

Import Substitution

A key element of the inward oriented strategy, it is often described as import substitution strategy.

Outward Oriented Trade Strategy

A trade strategy in which trade and industrial policies do not discriminate between production for the domestic market and exports, nor between the purchase of domestic goods and foreign goods.

Absolute Advantage

A country has this over its trading partners if it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources.

Comparative Advantage

A country has this in the production of a good or service that it produces at a lower opportunity cost than its trading partners.

Comparative advantage

occurs when a country can produce a good or service at a lower opportunity cost than another country.

Opportunity Cost Formula

Loss of what you give up / Gain of what you choose

Productive

Export those goods and services for which a country is more than other countries.

Productive

Import those goods and services for which other countries are more than it is.

United States

The world's top merchandise exporter.

Absolute Advantage Theory

A theory stating a country should specialize in the production of and export products for which it has absolute advantage and import other products.

Mercantilism

A 16th century economic theory that weakens a country in the long run but enriches only a few.

Comparative Advantage

A country should specialize in the production of those goods in which it is relatively more productive, even if it has absolute advantage in all goods it produces.