chapter ix ~ international trade

globalization

economic trade between countries; dramatic increase since the end of wwii

hyperglobalization

high levels of international trade

imports

goods and services purchased from foreign countries

exports

goods and services sold to foreign countries

ricardian model of international trade

early 19th century established by david ricardo that holds opportunity costs constant to analyze trade patterns

autarky

situation where a country does not trade with another country

relative prices

price of one good/service in terms of another good/service in an international market

what leads to countries having a comparative advantage?

climate, different factor endowments, and technology

climate

some goods might grow better in different climates

different factor endowments

countries have different factors of production

technology

different methods to produce goods/services

factor intensity

measures which factors are used in greater quantities than other factors in production

factor abundance

metric of how large the supply of a factor of production is in a country

heckscher-ohlin model

a country that has an abundant supply of a factor of production will have a comparative advantage in the production of goods/services that rely heavily on that factor of production

domestic demand curve

shows how the quantity of a good/service demanded by domestic consumers depends on the price of a good/service

domestic supply curve

shows how the quantity of a good/service supplied by domestic producers depends on the price of the good/service

world price

price the good/service can be bought in another country

exporting industries

industries where goods/services are sold abroad

import-competing industries

industries where domestically produced goods/services compete with goods/services imported from abroad `

free trade

gov does not try to influence levels of imports/exports

trade protection

gov policies that limit/restrict imports

tariff

a tax on imports, plays w/ price

import quota

gov issued limit on the amount of goods/services that can be imported; plays w/ quantity

national security

a country should protect critical goods and services in order to be self-sufficient should international conflict arise

job creation

additional jobs created in import-competing industries

infant industry

newer industries need to be established and trade protection achieves this

international trade agreements

treaties between countries where less trade protections are placed on imported goods/services from countries within the agreement

world trade organization (wto)

world governing body that oversees international trade agreements and rules on disputes between countries