Econ Ch.18: The world economy

Trade Surplus

The situation when a country exports more than it imports.

Trade Deficit

The situation when a country imports more than it exports.

Corn Laws

Early 19th-century British tariffs and restrictions discouraging grain imports.

Theory of Comparative Advantage

Ricardo's theory that specialization and free trade benefit all trading partners.

Absolute Advantage

The production advantage when a country uses fewer resources than another.

Comparative Advantage

The production advantage when a good has a lower opportunity cost.

Terms of Trade

The ratio at which a country trades domestic products for imports.

Exchange Rate

The ratio at which two currencies are traded.

Factor Endowments

The quantity and quality of a country's labor, land, and natural resources.

Heckscher-Ohlin Theorem

Theory explaining comparative advantage through a country's factor endowments.

Protection

The practice of shielding a domestic economic sector from foreign competition.

Soft Trade Barriers

Regulatory standards and requirements making foreign competition more difficult.

Tariff

A tax levied on imports.

Export Subsidies

Government payments to domestic firms to encourage exports.

Dumping

Selling products on the world market at prices below production cost.

Quota

A legal limit on the quantity of imports.

Smoot-Hawley Tariff

The 1930 U.S. tariff law setting record-high rates and sparking a trade war.

GATT

A 1947 international agreement established to promote foreign trade liberalization.

World Trade Organization (WTO)

An international forum dealing with the rules of trade across nations.

Economic Integration

The joining of two or more nations to form a free-trade zone.

European Union (EU)

A major European trading bloc and economic union.

Infant Industry

A young industry needing temporary protection to develop comparative advantage.