Chapter 37: International Trade

Labor-intensive goods

Goods whose design and production require much skilled labor

outcome of international specialization

The ________ and trade is equivalent to having more and better resources or discovering improved production techniques.

Land-intensive goods

Goods that require vast amounts of land

Capital-intensive goods

Goods whose production requires much capital

Opportunity-cost ratio

The domestic exchange ratio for two products

Principle of comparative advantage

Total output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost for that good

Terms of trade

The exchange ratio at which 2 nations trade 2 goods

Trading possibilities line

Shows the amounts of two products a nation can obtain by specializing in one product and trading for the other

Gains from trade

The net benefits to economic agents from being allowed an increase in voluntary trading with each other

World price

The price that equates the quantities supplied and demanded globally

Domestic price

The price that would prevail in a closed economy that does not engage in international trade

Export supply curve

Shows the amount of a good that the producers of a nation will export at each world price

Import demand curve

Shows the amount of a good that a nation will import at each world price

Equilibrium world price

The price of a good at equilibrium world levels of exports and imports when the world is opened to trade

Tariffs

Excise taxes on imported goods

Revenue tariff

Usually applied to a product that is not being produced domestically

Protective tariff

Designed to shield domestic producers from foreign competition

Import quota

Specifies the maximum amount of a commodity that may be imported in any period

Nontariff barrier (NTB)

Refers either to a licensing requirement that specifies unreasonable standards pertaining to product quality and safety, or to unnecessary bureaucratic red tape that is used to restrict imports

Voluntary export restriction (VER)

A trade barrier by which foreign firms “voluntarily” limit the amount of their exports to a particular country

Efficient production of goods

________ requires different technologies or resources.

Strategic trade policy

The advances achieved in one domestic industry often can be transferred to other domestic industries

Dumping

The sale of a product in a foreign country at prices either below cost or below the prices commonly charged at home

Smoot-Hawley Tariff Act

Although that act was meant to reduce imports and stimulate U.S. production, the high tariffs it authorized prompted adversely affected nations to retaliate with tariffs equally high

World Trade Organization (WTO)

Oversees trade agreements and rules on disputes relating to them

Labor-intensive goods

Goods whose design and production require much skilled labor

Land-intensive goods

Goods that require vast amounts of land

Capital-intensive goods

Goods whose production requires much capital

Opportunity-cost ratio

The domestic exchange ratio for two products

Principle of comparative advantage

Total output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost for that good

Terms of trade

The exchange ratio at which 2 nations trade 2 goods

Trading possibilities line

Shows the amounts of two products a nation can obtain by specializing in one product and trading for the other

Gains from trade

The net benefits to economic agents from being allowed an increase in voluntary trading with each other

World price

The price that equates the quantities supplied and demanded globally

Domestic price

The price that would prevail in a closed economy that does not engage in international trade

Export supply curve

Shows the amount of a good that the producers of a nation will export at each world price

Import demand curve

Shows the amount of a good that a nation will import at each world price

Equilibrium world price

The price of a good at equilibrium world levels of exports and imports when the world is opened to trade

Tariffs

Excise taxes on imported goods

Revenue tariff

Usually applied to a product that is not being produced domestically

Protective tariff

Designed to shield domestic producers from foreign competition

Import quota

Specifies the maximum amount of a commodity that may be imported in any period

Nontariff barrier (NTB)

Refers either to a licensing requirement that specifies unreasonable standards pertaining to product quality and safety, or to unnecessary bureaucratic red tape that is used to restrict imports

Voluntary export restriction (VER)

A trade barrier by which foreign firms "voluntarily" limit the amount of their exports to a particular country

Military self-sufficiency argument

Protective tariffs are needed to preserve or strengthen industries that produce the materials essential for national defense

Diversification for stability argument

The economies of unstable nations need tariff and quota protection to enable greater industrial diversification

Infant industry argument

Protective tariffs are needed to allow new domestic industries to establish themselves

Strategic trade policy

The advances achieved in one domestic industry often can be transferred to other domestic industries

Protection against dumping argument

Tariffs are needed to protect domestic firms from "dumping" by foreign producers

Dumping

The sale of a product in a foreign country at prices either below cost or below the prices commonly charged at home

Increased domestic employment argument

A tariff will save US jobs

Smoot-Hawley Tariff Act

Although that act was meant to reduce imports and stimulate U.S. production, the high tariffs it authorized prompted adversely affected nations to retaliate with tariffs equally high

Cheap foreign labor argument

Domestic firms and workers must be shielded from the ruinous competition of countries where wages are low

World Trade Organization (WTO)

Oversees trade agreements and rules on disputes relating to them