Comprehensive Guide to International Trade, Externalities, and Income Distribution

Imports

Goods and services purchased from abroad.

Exports

Goods and services sold abroad.

Globalization

The increasing interconnectedness of economies and cultures through trade and communication.

Hyperglobalization

A phenomenon characterized by extremely high levels of international trade and investment.

Ricardian model of international trade

A model that assumes constant opportunity costs and demonstrates gains from trade between countries.

Autarky

An economic situation where a country does not engage in international trade.

Factor intensity

The relative amount of different factors of production used in the production of goods.

Heckscher-Ohlin model

A theory that explains comparative advantage based on differences in factor endowments.

Domestic demand curve

A graph showing the relationship between the price of a good and the quantity demanded within a country.

Domestic supply curve

A graph showing the relationship between the price of a good and the quantity supplied within a country.

World price

The price at which a good is bought and sold in the international market.

Exporting industries

Industries that produce goods primarily for sale in foreign markets.

Import-competing industries

Industries that produce goods that compete with imported products.

Free trade

International trade that occurs without government restrictions or tariffs.

Trade protection

Government policies that restrict international trade to protect domestic industries.

Tariff

A tax imposed on imported goods to raise their price and protect domestic producers.

Import quota

A legal limit on the quantity of a good that can be imported into a country.

International trade agreements

Treaties between countries to facilitate trade by reducing tariffs and other barriers.

Trade wars

Economic conflicts that arise when countries impose tariffs or other trade barriers against each other.

North American Free Trade Agreement (NAFTA)

A trade agreement between Canada, Mexico, and the United States aimed at reducing trade barriers.

USMCA

The United States-Mexico-Canada Agreement, which replaced NAFTA and updated trade regulations.

European Union (EU)

A political and economic union of European countries that promotes free trade and economic cooperation.

World Trade Organization (WTO)

An international organization that regulates and facilitates international trade agreements.

Offshore outsourcing

The practice of relocating business processes or services to another country to reduce costs.

External cost

A cost incurred by a third party due to an economic transaction, not reflected in the market price.

External benefit

A benefit received by a third party due to an economic transaction, not reflected in the market price.

Externalities

Costs or benefits that affect third parties and are not reflected in the market price of goods or services.

Negative externalities

External costs that negatively impact third parties, such as pollution.

Positive externalities

External benefits that positively impact third parties, such as education.

Marginal social cost of pollution

The total cost to society of producing one more unit of pollution.

Marginal social benefit of pollution

The total benefit to society from producing one more unit of pollution.

Socially optimal quantity of pollution

The level of pollution where the marginal social cost equals the marginal social benefit.

Coase theorem

A theory suggesting that private parties can negotiate solutions to externalities without government intervention if transaction costs are low.

Internalize the externality

The process of accounting for external costs or benefits in decision-making.

Transaction costs

The costs associated with making an economic exchange, including negotiation and enforcement costs.

Environmental standards

Regulations set by governments to limit pollution and protect the environment.

Emissions tax

A tax imposed on the quantity of pollution emitted, incentivizing reductions in emissions.

Pigouvian taxes

Taxes levied on activities that generate negative externalities to correct market outcomes.

Tradable emissions permits

Permits that allow the holder to emit a certain amount of pollution, which can be bought and sold.

Climate change

Long-term alterations in temperature and typical weather patterns in a place, often attributed to human activities.

Greenhouse gases

Gases in the atmosphere that trap heat and contribute to global warming.

Fossil fuels

Natural fuels formed from the remains of ancient organisms, including coal, oil, and natural gas.

Renewable energy sources

Energy sources that are replenished naturally, such as solar, wind, and hydroelectric power.

Clean energy sources

Energy sources that produce little to no pollution, contributing to a sustainable environment.

Paris Agreement

An international treaty aimed at combating climate change and limiting global warming.

Pigouvian subsidy

A subsidy provided to encourage activities that generate positive externalities.

Technology spillover

The transfer of technology from one firm or industry to another, often leading to innovation.

Network externality

A situation where the value of a product or service increases as more people use it.

Positive feedback

A process that amplifies changes or trends, often leading to exponential growth or decline.

What are emissions taxes?

Emissions taxes are a form of Pigouvian tax designed to reduce pollution by charging a fee based on the amount of pollution emitted.

What are tradable emissions permits?

Tradable emissions permits are licenses that allow the holder to emit a certain amount of pollutants, which can be bought and sold, providing a market-based approach to controlling pollution.

What is the optimal Pigouvian tax on pollution?

The optimal Pigouvian tax on pollution is equal to its marginal social cost at the socially optimal quantity of pollution.

What are renewable energy sources?

Renewable energy sources are energy sources that are inexhaustible and can be replenished naturally, such as solar, wind, and hydroelectric power.

What role do policies like taxes and subsidies play in renewable energy?

Policies such as taxes, tax credits, subsidies, and mandates help facilitate a shift toward renewable clean energy sources.

What is the Paris Agreement?

The Paris Agreement is a multilateral treaty that commits countries to common objectives for reducing greenhouse gas emissions and addressing climate change.

What are positive externalities?

Positive externalities occur when a good or activity provides benefits to others who are not directly involved in the transaction, such as technology spillovers.

What are network externalities?

Network externalities arise when the value of a good or service increases as more people use it, leading to positive feedback in market success.

What is a public good?

A public good is a good that is nonexcludable and nonrival in consumption, meaning it can be consumed by many without reducing its availability to others.

What is the free-rider problem?

The free-rider problem occurs when individuals benefit from a good without contributing to its cost, leading to inefficiently low production.

What is cost-benefit analysis?

Cost-benefit analysis is a method used by governments to evaluate the efficiency of providing public goods by comparing the costs and benefits.

What is a common resource?

A common resource is a resource that is rival in consumption but nonexcludable, leading to potential overuse.

What is overuse in the context of common resources?

Overuse occurs when individuals do not consider the depletion of a common resource caused by their consumption, leading to negative externalities.

What are artificially scarce goods?

Artificially scarce goods are excludable but nonrival in consumption, where the efficient price is zero but a positive price leads to inefficiently low consumption.

What is physical capital?

Physical capital refers to tangible assets used in the production of goods and services, such as machinery and buildings.

What is human capital?

Human capital is the economic value of an individual's skills, knowledge, and experience that contribute to productivity.

What is the factor distribution of income?

The factor distribution of income refers to how income is distributed among the factors of production, such as labor and capital.

What is the value of the marginal product?

The value of the marginal product is the additional revenue generated from employing one more unit of a factor of production.

What is the price-taking producer's optimal employment rule?

The price-taking producer's optimal employment rule states that a producer maximizes profit by employing factors of production until the value of the marginal product equals the factor's price.

What is the equilibrium value of the marginal product?

The equilibrium value of the marginal product is the additional value produced by the last unit of labor or capital hired in a competitive market.

What are compensating differentials?

Compensating differentials are wage differences that compensate workers for non-monetary aspects of different jobs, such as risk or unpleasant working conditions.

What is the unadjusted gender gap?

The unadjusted gender gap refers to the difference in earnings between men and women, not accounting for factors like occupation or experience.

What are unions?

Unions are organized groups of workers that come together to make collective decisions about the terms and conditions of their work.

What is the efficiency-wage model?

The efficiency-wage model suggests that higher wages can lead to increased productivity and lower turnover among workers.

What is time allocation in economics?

Time allocation refers to how individuals distribute their time among various activities, including work, leisure, and other pursuits.

What is leisure in economic terms?

Leisure refers to time spent away from work or duties, which can be used for relaxation, recreation, or personal pursuits.

What is the individual labor supply curve?

The individual labor supply curve illustrates the relationship between the wage rate and the quantity of labor an individual is willing to supply.

Welfare state

A government system that provides social services and financial support to ensure the well-being of its citizens.

Government transfer

Payments made by the government to individuals or families, often to support those in need.

Poverty program

Programs designed to alleviate poverty by providing financial assistance or services to low-income individuals and families.

Social insurance program

Government programs that provide financial support during periods of unemployment, disability, or retirement.

Poverty threshold

The minimum level of income deemed adequate in a particular country, used to measure poverty.

Persistent poverty

A situation where individuals or families remain in poverty over an extended period, often across generations.

Poverty spillover effects

The impact of poverty in one area affecting neighboring regions, leading to broader economic challenges.

Poverty rate

The percentage of the population living below the poverty threshold.

Mean household income

The average income of households in a given area, calculated by dividing total income by the number of households.

Median household income

The income level at which half of the households earn more and half earn less, providing a better measure of typical income.

Gini coefficient

A statistical measure of income inequality within a population, where 0 represents perfect equality and 1 represents perfect inequality.

Means-tested

Programs that provide benefits based on an individual's or family's income and financial resources.

In-kind benefit

Non-cash benefits provided to individuals, such as food assistance or housing support.

Negative income tax

A tax system where individuals earning below a certain threshold receive supplemental pay from the government instead of paying taxes.

Private health insurance

Health insurance coverage provided by private companies, as opposed to government-funded programs.

Single-payer system

A healthcare system where a single public agency handles health care financing, with services provided by private entities.

Marginal productivity theory of income distribution

An economic theory stating that each factor of production is paid according to the value of its marginal product.

Compensating differentials

Wage differences that arise to compensate workers for non-monetary aspects of different jobs, such as risk or unpleasant conditions.

Efficiency-wage model

A theory suggesting that higher wages can lead to increased worker productivity and performance.

Labor supply

The total hours that workers are willing and able to work at a given wage rate.

Substitution effect

The economic principle that as wages increase, workers may choose to work more hours instead of enjoying leisure time.

Income effect

The economic principle that as wages increase, workers may choose to work fewer hours because they can maintain their standard of living with less work.

Market labor supply curve

A graphical representation of the total quantity of labor supplied by all workers in a market at various wage levels.

Changes in preferences and social norms

Shifts in societal values and individual choices that affect labor supply and demand.