Comparative Advantage and the Gains from International Trade

These flashcards cover key terms and concepts related to comparative advantage and international trade including definitions, differences, and implications.

What is a tariff?

A tax imposed by a government on imports.

What are imports?

Goods and services bought domestically but produced in other countries.

What are exports?

Goods and services produced domestically but sold in other countries.

What does comparative advantage mean?

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

What is the opportunity cost?

The highest-valued alternative that must be given up to engage in an activity.

What is the difference between comparative advantage and absolute advantage?

Absolute advantage is the ability to produce more of a good or service than competitors, while comparative advantage refers to a lower opportunity cost.

What is autarky?

A situation in which a country does not trade with other countries.

How do countries gain from international trade?

Countries gain by trading some of what they produce at a comparative advantage for what the other country is relatively good at producing.

What are the terms of trade?

The ratio at which a country can trade its exports for imports from other countries.

What are the implications of increasing opportunity costs?

Not all goods and services can be traded internationally, and small amounts of production may occur in several countries.

What is protectionism?

The use of trade barriers to shield domestic firms from foreign competition.

What is dumping in the context of international trade?

Selling a product for a price below its cost of production.

What is the World Trade Organization (WTO)?

An international organization that oversees international trade agreements and promotes trade liberalization.