CH 6 Vocab: International Trade Theory

These flashcards cover key concepts related to international trade theory, highlighting essential terms and their definitions for exam preparation.

Gains from trade

The economic benefits that countries obtain when they specialize in the production of goods and services they can produce most efficiently while importing what they cannot produce as efficiently.

Free trade

A trade policy that allows goods and services to be bought and sold across international borders with minimal government restrictions like tariffs or quotas.

New trade theory

Economic theory that emphasizes the role of economies of scale and network effects in international trade and market dominance.

Factor endowments

The extent to which a country is endowed with resources like land, labor, and capital, influencing its comparative advantage in production.

Mercantilism

An economic theory prevalent in the 16th and 17th centuries advocating for government intervention to promote exports and limit imports to maintain a trade surplus.

Zero-sum game

A situation in economics where one participant's gain or loss is exactly balanced by the losses or gains of other participants.

Absolute advantage

The ability of a country to produce a good more efficiently than another country.

Constant returns to specialization

The assumption that the amount of resources required to produce a good remains constant regardless of the level of production.

Economies of scale

Cost advantages that firms obtain due to the scale of their operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units.

First-mover advantages

The benefits that an innovating firm gains by being the first to develop and market a product, allowing it to establish a strong market position.

Balance-of-payments accounts

A comprehensive record of all economic transactions between residents of a country and the rest of the world.

Current account

A component of a country's balance of payments that includes the trade balance, net income from abroad, and net current transfers.

Current account deficit

A situation where a country's total imports of goods, services, and transfers exceed its total exports.

Current account surplus

A situation where a country's total exports of goods, services, and transfers exceed its total imports.

Capital account

A component of a country's balance of payments that records the net change in ownership of national assets.

Financial account

A component of the balance of payments that measures the flow of investment between countries.