Understanding the Economy: International Trade

A series of flashcards designed to review key concepts of international trade, including definitions, advantages, disadvantages, and economic theories.

What is international trade?

Sales and purchases of goods and services that take place across international boundaries.

What is absolute advantage?

A country has an absolute advantage when its output of a product is greater per unit of resource used than any other country.

What is comparative advantage?

A country has a comparative advantage if the opportunity cost of producing a good is lower than the opportunity cost for other countries.

List one advantage of international trade.

Consumer benefits from larger variety of goods and services.

What is one disadvantage of international trade?

Typically, higher transport costs.

What are tariffs?

Taxes on certain imports that raise the price of imported goods, making them less competitive.

What arguments are made for free trade?

Lower prices for consumers, increased exports, and economic growth.

What are some arguments against free trade?

Infant industry support, environmental concerns, and protection against dumping.

Define specialisation in the context of trade.

Countries specializing in making the goods and services they are best at producing.

What are quotas in international trade?

Limits placed on the number of imports allowed.

What is the purpose of the World Trade Organization (WTO)?

To regulate international trade and reduce barriers to trade.

What is trade creation?

The situation where trade increases as a result of forming a customs union.

What is trade diversion?

When trade shifts from a more efficient producer to a less efficient one due to trade agreements.

Why is specialization beneficial?

It leads to more efficient use of resources and lower consumer prices.

What is meant by non-tariff barriers?

Rules and regulations that make trade more difficult without imposing taxes.

What is the infant industry argument?

The idea that emerging industries may require protection to develop and compete.

How does international trade benefit living standards?

By allowing access to a greater variety of goods and services, raising efficiency and innovation.