UNIT 2 INTERNATIONAL TRADE

International trade

the purchase, sale or exchange of goods and services across national borders is called

Mercantilism

a trade theory which holds that a government can improve the economic well being of the country by encouraging exports and stifling imports to accumulate wealth in the form of precious metals

Trade surplus

is the condition that results when the value of a nation’s exports is greater than the value of imports

Trade deficit

the value of a country’s imports is greater than the value of its exports

Exporting

Sending goods to another country for sale/ trade

Importing

Bringing in goods from another country for sale/ trade

Theory of absolute advantage

A trade theory which holds that nations can increase their economic well being by specializing in goods that they can produce more efficiently than anyone else

Theory of comparative advantage

A trade theory which holds that nations should produce those goods for which they have the greatest relative advantage

Factor endowment theory

A trade theory which holds that nations will produce and export products that use large amounts of production factors that they have in abundance and will import products requiring a large amount of production factors that they lack

Subsidy

Financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or some other form

Loan guarantee

when a government guarantees that it will repay the loan of a company if the company should default on repaymentt

Foreign trade zone

a designated geographic region in which merchandise is allowed to pass through with lower customs duties and/or fewer procedures

International product life cycle (IPLC) theory

a theory of the stages of production of a product with new ‘know-how’: it is first produced by the parent firm, then by its foreign subsidiaries, and finally anywhere in the world where costs are the lowest; it helps explain why a product that begins as a nation’s export often ends up as an import

Embargo

A complete ban on trade (imports and exports) in one or more products with a particular country

WTO

the only international body dealing with rules of trade between nations

Neo-mercantilism

a trade theory which holds that a government can improve the economic well being of the country by encouraging exports and stifling imports

GATT

A treaty that was designated to promote free trade by reducing both tariffs and non-tariff barriers to international trade

Heckscher Ohlin theory

A trade theory that extends the concept of comparative advantage by bringing into consideration the endowment and cost of factors of production and helps to explain why nations with relatively large labour forces will concentrate on producing labour-intensive goods, whereas countries with relatively more capital than labour will specialise in capital-intensive goods

Leontief paradox

A finding by Wassily Leontief, a Nobel Prize winning economist, which shows that the US, surprisingly, exports relatively more labour - intensive goods and imports capital - intensive goods

Commodities

countries import some goods and services from abroad, and export others to the rest of the world. Trade in ___ is called visible trade in britain and merchandise trade in the US

primary

The LDCs export a limited range of ___ commodities such as foodstuffs, fuels and industrial raw materials, etc

Terms of trade

x x x are the ratio of the unit price of exports to the unit price of imports

tariff

a government tax levied on a product as it enters or leaves a country

export tariff

A tariff levied by the government of a country that is exporting a product is called

import tariff

A tariff levied by the government in a country that is importing a product is called

ad valorem tariff

A tariff levied as a percentage of the stated price of an imported product is called

specific tariff

A tariff levied as a specific fee for each unit( measured by number, weight, etc.) of an imported product is called

compound tariff

A tariff levied on an imported product and calculated partly as a percentage of its stated price, and partly as a specific fee for each unit is referred to as a(n)

WTO

the only international body dealing with rules of trade between nations

dumping

When a company exports a product at a price lower than the price normally charged in its domestic market, it is said to be