International Trade

Logistics

the process of moving resources to other places

Free Trade

trade that occurs without government barriers

Objective of Free Trade

maximizing economic efficiency, lowering global prices, enhancing marketing competition

Effect of Free Trade on Domestic Industries

exposes local companies to global pressures, unemployment

International Trade

exchanging, buying, and selling products between sovereign nations across international borders

Objective of International Trade

accessing foreign goods, expanding market share, generating national revenue

Impact of International Trade on Domestic Producers

insulates them from global pressure, allows inefficiency

Dumping

 the practice of selling a good in international markets at prices below production costs to gain a competitive advantage

Primary Sector

the part of the economy that extracts natural resources and cultivates agriculture

Secondary Sector

the part of the economy responsible for manufacturing and assembly

Tertiary Sector

the part of the economy that provides high and low skilled services

Exchanges that are made during International Trade

goods, FOPs, remittances, entrepreneurship, land

Commodity

raw materials that can be used to produce other finished goods, final goods, and intermediate goods

Arbitrage

buying an asset for a low price and selling it at a high price

Most traded commodities

crude oil, metals, agricultural commodities

Benefits of Trade

increasing domestic production and consumption, comparative advantage, economies of scale, less conflict, improved economic wellbeing, factor endowments, helps nations acquire resources, exchange rate accessibility

Absolute Advantage

the ability to produce a greater quantity of a product than competitors using the same materials

Comparative Advantage

the ability to produce at a lower opportunity cost relative to peers

Limits of Comparative Advantage Theory

countries produce more than 2 goods, calculating opportunity cost is difficult, ignores shipping costs, ignores structural changes in the economy, encourages excessive specialization

Protectionism

government intervention in international trade through the imposition of trade restrictions or barriers

Why do economies restrict trade?

protecting domestic jobs, fairness, government revenue, national defense, protecting infant industries, promoting exports

Tariffs

taxes on imported goods

Quota

a legal limit on the amount of goods that can be imported over a particular period of time

Assumptions of quotas

domestic nation can fulfill missing supply

Subsidies

forms of financial assistance to domestic firms to increase domestic revenue and consumption

Export Subsidies

per unit subsidies that aim to protect specific export-oriented firms

Administrative Barriers

the application of standards and regulations imposed on foreign firms

Examples of administrative barriers

embargoes, exchange controls, costs of meeting standards, time lags