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16 Cards in this Set
- Front
- Back
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Autarky (Closed economy)
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Country that does not trade with other countries
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Terms of trade
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Ratio of price of export over price of import
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Absolute advantage
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Produce the good at lower cost in terms of resources than other country
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Comparative advantage
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its opportunity cost of other good that can be produce is lower than other country
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Ricardian Model
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One factor of production - Labour
Difference in labor productivity due to differences in technology |
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Heckscher and Ohlin model
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Two factors or production - capital and labor
Capital intensive country will specialize in capital intensive good and trade for less capital intensive good |
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Reason for trade restriction
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Protect infant industry
National security Protecting domestic jobs |
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Type of trade restrictions
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Tariffs
Quotas - limits on amount of imports Export subsidies Minimum domestic content |
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Voluntary export restraint
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Voluntary agreement by a government to limit the quantity of a good that can be exported
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Minimum domestic content
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A requirement that goods sold in a country contain a certain minimum of domestic value added.
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Balance of payments
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Foreign debt to domestic countries and domestic debt to foreign countries must balance each other
Include: Current account, capital account, financial account |
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Current account
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Flows of goods and services
Merchandise and services - Raw materials and manufactured goods bought, sold of given away Income receipt - Foreign income from dividends, and interest |
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Capital Account
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Capital transfer and acquisition and disposal of non produced, non financial asset
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Financial Account
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Investment flows
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Trading blocs; regional trading agreements
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1) Free trade areas
2) Customs Union - All countries adopt a common set of trade restriction with non member countries 3) Common Market - All barriers to movement of labor and capital goods to be removed 4) Economic Union - Establish common institution and economic policy 5) Monetary union - All countries adopt a single currency |
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Pros and Cons for trade restriction reduction
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Pro: Increase trade, increase competitions
Cons: wealth and incomes decrease |
