CHAPTER 18 International trade and finance Part 1

Flashcards on international trade and finance, covering topics like comparative advantage, free trade, protectionism, and strategic trade theory.

Why do nations benefit from trade?

Trade allows a country to consume goods and services in excess of its production possibilities frontier (PPF).

What is comparative advantage?

The ability of a country to produce a product at a lower opportunity cost than another country.

What is absolute advantage?

The ability of a country to produce a product using fewer resources than another country.

What is free trade?

The flow of goods and services between countries without restrictions or special taxes.

What is fair trade?

The view that a country should only reduce its barriers to imports from another country if the other country does not have some sort of 'unfair' competitive advantage over it and the other country is also willing to reduce its import barriers reciprocally.

What is strategic trade theory?

The idea that governments should actively facilitate some sectors of the economy that they feel may have the potential to be strong export earners for their nations.

What is protectionism?

The government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition.

What are embargoes?

Laws that bar trade with another country.

What are tariffs?

Taxes on imports.

What are quotas?

Limits on the quantity of a good that may be imported.

What are subsidies?

Lower costs to exporters.

What are some arguments for protectionism, according to its advocates?

The infant industry argument, the national security argument, the employment argument, and the cheap foreign labor argument.

What is a free trade agreement (FTA)?

An agreement negotiated to enable the free flow of capital, labor, and investment.