Specialisation and comparative advantage, Protectionism, Role of WTO in trade liberalisation

T4 CC1 (keywords)

Absolute Advantage

A country has an absolute advantage over another if it is able to produce a good using fewer resources, i.e. cheaper.

Comparative Advantage

A country has a comparative advantage over another if it can produce a good at a lower opportunity cost.

Specialisation

When households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others.

Protectionism

The use of trade barriers e.g. tariff to favour domestic suppliers at the expense of foreign suppliers.

Tariff

A tax on imports, sometimes called an import or customs duty.

Quota

A physical limit on the quantity of a good that can be imported.

Subsidies (to domestic producers)

A grant given to firms which lowers the price of a good, usually designed to encourage production or consumption of a good.

Non-tariff barriers

These are regulations which increase cost to foreign producers and therefore act as barriers to trade.

Infant industry

An industry that has a potential comparative advantage but which is as yet too underdeveloped to be able to realise this potential.

Dumping

The sale of goods at less than cost price by foreign producers in the domestic market.

Trade liberalisation

The process of making trade free from protectionist barriers.

Pattern of Trade

The composition of a country’s imports and exports and the volume of its trade with the rest of the world.

Terms of Trade

Show the value of a country’s average export prices relative to their average import prices

Protectionism

The use of economic policies to regulate trade between countries mainly to reduce imports.

Trade barrier

Any measure which artificially restricts international trade.

World Trade Organisation (WTO)

International organisation based in Geneva, Switzerland, and consists of 166 member states. It acts as a forum to negotiate trade agreements and to help settle disputes.