Ch. 3 AP Microeconomics (Interdependence and Gains from Trade)

WTO

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT, FOUNDED 1995.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower OPPORTUNITY COST(not inputs like absolute advantage) than other producers. Is way there is gains from trade. Reflects the relative opportunity cost.

International Trade

________________ __________ WILL make a country as a whole better off, but it can make some people or groups(special interests) worse off, which is why some people do not support it.

Interdependence

The mutual dependence of countries on goods, resources, and knowledge from other parts of the world, the current trend is points to an increasing amount of this through trade.

Absolute advantage

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources(inputs).

Consumption

If countries or individuals choose not to trade, then the production possibilities frontier becomes a _____________ possibilities frontier.

Specialization

When people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else

Inverse

It is impossible for a person or country to have a comparative advantage in two goods when compared on the PPF, because the opportunity cost of one good will be the ______ of the other goods opportunity cost.

Trade

Benefits everyone in society because it allows people to specialize in activities in which they have a comparative advantage. However for both parties to benefit, the price at which they trade MUST lie between the two opportunity costs.

David Ricardo

English economist who argued that the laws of supply and demand should operate in a free market (1772-1823), and thoroughly developed comparative advantage in his book "Principles of Political Economy and Taxation".

Corn Laws

Passed in 1815 in England by gentry/squires who controlled parliament. Raised the tariffs on imported grain (which flooded market after Napoleonic Wars) in order to protect their own interests. Provoked demonstrations, riots and even an attack on the Prince Regent. The government responded by suspending habeas corpus, dealing harshly with suspects and employing spies to infiltrate mob. Repealed in 1846,Economist David Ricardo voted against this in principle.

Imports

Goods and services that are produced abroad and sold domestically

Exports

Goods produced domestically and sold abroad

NAFTA

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.