Economics 12HL Unit 4

International Trade

Buying and selling goods/services across international borders.

Surplus

Occurs when quantity supplied exceeds quantity demanded, leading to exports.

Shortage

Occurs when quantity demanded exceeds quantity supplied, leading to imports.

Free Trade

Trade without restrictions or government intervention.

Gains from Trade

Benefits derived from international trade, including lower prices and greater choice for consumers.

Absolute Advantage

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

Comparative Advantage

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

Tariff

A tax on imported goods, used as a trade protection measure.

Import Quota

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

Trade Protection

Government intervention in international trade to protect domestic industries.

Consumer Surplus (CS)

The difference between what consumers are willing to pay and what they actually pay.

Producer Surplus (PS)

The difference between what producers are willing to accept and what they actually receive.

Deadweight Loss (DWL)

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Subsidy

A payment by the government to a firm for each unit of output produced, aimed at protecting domestic firms.

Exchange Rate

The rate at which one currency can be exchanged for another, crucial for international trade.

Currency Appreciation

An increase in the value of a currency relative to another currency.

Currency Depreciation

A decrease in the value of a currency relative to another currency.

Trade Protection Debate

Arguments for and against trade protection, including infant industries and national security.

Preferential Trade Agreements (PTA)

Agreements to lower/remove trade barriers between member countries.

Trading Blocs

Groups of countries that reduce trade barriers to encourage free trade among members.

Trade Creation

Higher cost products replaced by lower cost imports through a customs union.

Trade Diversion

Lower cost imports replaced by higher cost imports through a customs union.

Monetary Union

A common market with a single currency and central bank.

World Trade Organization (WTO)

The global organization dealing with the rules of trade between countries.

Floating Exchange Rates

Exchange rates determined by market forces without government intervention.

Fixed Exchange Rates

Exchange rates that are pegged and require constant central bank intervention.

Managed Exchange Rates

Exchange rates influenced by a country's central bank while primarily determined by market forces.