International Economics (1): Trade and Protection

Vocabulary flashcards covering key concepts from Unit 5: International Economics (Trade and Protection), including advantages of trade, protectionist tools, and terms of trade.

International Trade

The movement of goods and services across international borders that allows nations to consume beyond their own Production Possibilities Frontier (PPF).

Production Possibilities Frontier (PPF)

A curve showing the maximum combinations of goods and services a country can produce; trade lets consumption occur outside this frontier.

Absolute Advantage

The ability of a country to produce more of a good with the same resources, the same quantity with fewer resources, or at a lower cost than another country.

Comparative Advantage

The ability of a country to produce a good at a lower opportunity cost than another country; guides which good a country should specialise in.

Opportunity Cost

The amount of one good that must be given up to produce an additional unit of another good (loss ÷ gain).

Specialisation

When a country concentrates resources on the good in which it has comparative advantage, raising global output and living standards.

Gains from Trade

The increases in total world output and consumption that result when countries specialise and trade according to comparative advantage.

Free Trade

The absence of government-imposed barriers on the international flow of goods and services.

Protection

Government use of artificial barriers to restrict imports in order to shield domestic producers from foreign competition.

Tariff

A tax on imported goods that raises domestic prices, reduces imports, generates government revenue, and benefits local producers.

Quota

A government-set numerical limit on the quantity of a good that may be imported; raises prices but yields no tax revenue.

Embargo

A total ban on trade with a particular country or in a particular good.

Subsidy

A cash payment from government to domestic producers that shifts supply rightward, lowers market prices, and reduces imports at taxpayer expense.

Winners from Tariffs

Domestic firms (higher sales & prices), their workers (job security, possible wage rises), resource suppliers, and the government (tax revenue).

Losers from Tariffs

Consumers (higher prices, less consumption), importing firms, and other industries facing higher costs or inflationary pressure.

Infant Industry Argument

Claim that new or emerging industries need temporary protection from foreign competition until they become competitive.

National Security (Diversification) Argument

Justification for protection on the grounds that a country should maintain diverse domestic production in case of international conflict or supply disruption.

Employment Protection Argument

The view that trade barriers preserve domestic jobs by limiting import competition.

Anti-dumping

Protective action taken to prevent foreign firms from selling goods below cost or below home-market prices to gain market share.

Land, Labour, Capital, Enterprise

The four basic resource categories; their differing availability across countries underlies patterns of trade and comparative advantage.

Terms of Trade (TOT)

The quantity of imports a country obtains per unit of its exports; indicates trading power with the rest of the world.

Terms of Trade Formula

TOT = (Export price index ÷ Import price index) × 100.

Improvement in TOT

Occurs when export prices rise or import prices fall, allowing a country to obtain more imports for a given volume of exports.

Deterioration in TOT

Occurs when export prices fall or import prices rise, reducing the import quantity obtainable per unit of exports.