Chapter 14: International Trade Part 1

Free Trade

The absence of government intervention of any kind in international trade. Takes place without any barriers between individuals, firms or govs from different countries.

Specialisation

Occurs when an individual, firm or country concentrates its production on one or a few goods or services.

Absolute Advantage

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

Comparative Advantage

Refers to the situation where one country has a lower opportunity cost (relative cost) in the production of a good than another country.

Trade Liberalisation

Involves freeing up trade through the removal of trade restrictions.

Trade Protection 

Involves government intervention in international trade through the imposition of trade restrictions to prevent the free entry of imports into a country (protects the domestic economy). 

Tariffs

Taxes on imported goods.

Import Quotas

Legal limits to the quantity of a good that can be imported over a particular time period.

Production Subsidies 

Payments per unit of output granted by the gov to domestic firms that compete with imports.

Export Subsidies

Payment by the gov per unit of the subsidised good - subsidy is paid for each unit of the good that is exported. A

Administrative Barriers

Gov imposed rules and regulations which create obstacles to international trade by increasing the complexity and cost of importing foreign goods and services.