Vocab economy

Exports

The goods & services that it produces and sells to other nations

imports

The goods and services that the country buys from other countries

Absolute Advantage

Country’s ability to produce more of a given product than another country

PPC

diagram representing maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed.

comparative advantage

Ability to produce a product relatively more efficiently, or at a lower opportunity cost

Opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

Tariff

A tax placed on import to increase their price in the domestic Market

Quota

a limit placed on the quantities of a product that can be imported.

Protective tariff

Tariff high enough to protect less efficient domestic industries

Embargo

Government order prohibiting the movements of goods to a country.

protectionists

people who favor trade barriers to protect domestic industries

Free traders

people who favor fewer or no trade restrictions

Infant industries argument

new or emerging industries should be protected from foreign competition, until they’re strong enough to compete

Balance of Payments

the difference between the money a country pays out to, and receives from, other nations when it engages in international trade.

NAFTA

Agreement to liberalize free trade by reducing tariff & quotas among three major trading partners: CANADA, MEXICO, AND USA

Fixed exchange rates

A system under which the price of one currency is fixed in terms of another currency so that the exchange rate does not change.

Flexible exchange rate

The forces of supply and demand establish the value of one country’s currency in terms of another country’s currency

Trade deficit

Whenever the value of the products it imports exceeds the value of the products it exports.

Trade Surplus

Whenever the value of its exports exceeds the value of its imports

Revenue Tariff

Tariff high enough to generate revenue for the government without actually prohibiting imports.