Chapter 6 - International Trade Theory

Gains from trade

The economic benefits realized when countries specialize in the production (& export) of goods & services that they can produce more efficiently, while importing goods & services that they cannot produce so efficiently from other nations

Free Trade

Absence of barriers to the free flow of goods & services b/w countries

New Trade Theory

The observed pattern of trade in the world economy may be due to the ability of firms in a given market to capture first mover advantages

Factor Endowments

A country's endowment w/ resources such as land, labor, & capital

Mercantilism

An economic philosophy advocation that countries should simultaneously encourage exports & discourage imports

Zero sum Game

Situation in which an economic gain by one country results in an economic loss by another

Absolute Advantage

A country has an absolute advantage in the production of a product when it is more efficient that any other country at producing it

Constant Returns to Specialization

The units of resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier

Economies of Scale

Cost advantage associated w/ large scale production

First mover Advantages

Advantages accruing to the first to enter the market

Balance of payments Accounts

Nat'l accounts that track both pmts to and receipts from foreigners

Current Account

In the balance of pmts, records transactions involving the export or import of goods & services

Current Account Deficit

When a country imports more goods, services, & income than it exports

Current Account Surplus

When a country exports more goods, services, & income than it imports

Capital Account

In the balance of pmts, records transactions involving one time changes in the the stock of assets

Financial Account

In the balance of pmts, transactions that involve the purchase of sale of assets