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28 Cards in this Set

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What is Absolute Advantage?
The ability to produce more of a given product using a given amount of resources.
Ex. Should a wealthy country with many resources be self-sufficient, or should it trade for the goods it doesn't produce?
What is Comparative Advantage?
The ability to produce a product most efficiently given all the other products that could be produced.
The country w/ the comparative advantage & not necessarily the absolute advantage that should specialize in producing the good.
What is the Law of Comparative Advantage?
The idea that a nation if better off when it produces goods & services for which it has a comparative advantage.
Each nation can then use the money bo buy other goods that it cannot produce efficiently.
What is an Export?
A good that is sent to another country for sale
The U.S. is world's leading exporter due to its diversified range of products including computer software , medical equipment , & adv. technology
What is an Import?
A good that is brought in from another country for sale.
A country is wise to export more goods than it imports.
What is a Trde Barrier?
A trade restriction which is a means of preventing a foreign product /service from
entering a nation 's territory.
3 forms of Trade Barrier are import quotas, voluntary export restaints, & tariffs.
What is an Import Quota?
A limit of the amount of good that can be imported
Includes India , Pakistan, China, Egypt & Sudan.
What is a Voluntary Export
Restraint (VER)
A self-imposed limitation on the number of products shipped to a particular country.
The country voluntarily decreases its exports in an attempt to reduce the chances that the importing country will set up trade barriers.
What is a Customs Duty?
A tax on certain items purchased abroad.
"duty free" stores are at international borders and airports where countries agree to drop the tax on luxury items ( perfume, chocolate, liquor, tobacco)
What is a Tariff?
A tax on imported goods
U.S. collects tariffs on steel, foreign made cars, and many other products that are brought into our country
What is a Trade War?
A cycle of increasing trade restrictions.
Lead to substantial decrease in trade for both countries: ex. Smoot-Hawley Tariff 1930, Chicken Tariff 1963,
Beef War 1999, & Steel Tariff 2002
What is Protectionism?
The use of trade barriers to protect a nation's industries form foreign competition.
Includes: protection of worker jobs, protecting infant industries, and safeguarding national
securities.
What is Infant-Industry?
a new industry
tariff shield new industry from the competition of mature rivals.
What is the International Free Trade Agreement?(IFTA)
An agreement that results from cooperation between at least two countries to reduce trade barriers and tariffs and to trade with each other.
to reduce trade barriers in order to increase trade
What is the World Trade Organization?
A worldwide organization whose goal is freer global trade and lower tariffs.
founded in 1995 to ensur compliance with GATT; negotiates new trade agreements, resolves trade disputes. From 1930-1995, the average tariff dropped from about 59% to 5%.
What is the European Union?
A regional trade organization made of European nations
developed from 6 western European nations making up the Common Market. In 1986 they agreed to drop tariffs on one another's exports creating a single market- The EEC. In 1993 formed the EU (European Union) which has its own flag, anthem, and holiday "Europe Day" on May 9th & adopt Euro as currency in 2002.
What is the Euro?
A single currency that replaces individual currencies among members of the European Union.
12 member nations of the EU adopted the Euro in 2002
What is a Free-trade zone?
A region where a group of countries agrees to reduce or eliminate trade barriers
Ex. U.S.A., Canada, Mexico & China have adopted this policy
What is NAFTA?
An agreement that will eliminate all tariffs and other trade barriers between Canada, Mexico, & the U.S.
Key Provisions include eliminating tariffs on farm products w/n 15 yrs., no auto tariffs w/n 10 yrs., special judges apptd. to resolve trade disputes, trucks to have free access across borders, no overriding national/state environmental, health or safety laws.
What is an Exchange Rate?
The value of a foreign nation's currency in terms of the home nation's currency.
uses a Foreign Exchange Rate Table to calculate conversions
What is Appreciation?
An increase in the value of a currency
Currency becoming "stronger" due to increasing value. Causes a nations products to become more expensive abroad.
What is Depreciation?
A decrease in the value of a currency.
Currency becoming "weaker" due to decreasing value. Causes a nations products to become less expensive abroad.
What is a Foreign Exchange Market?
The banks and other financial institutions that facilitate the buying & selling of foreign currencies
banks located around the world in New York, London, Paris, Singapore, Tokyo, & other cities closely linked via computers & telephones for transmitting market info & speeding up financial transactions
What is a Fixed Exchange Rate System?
A currency system in which governments try to keep the values of their currencies constant against one another.
one country with a stable currency is at center while other countries fix/peg their exchange rates to the currency of this central country.
What is a Flexible Exchange Rate System?
A currency system that allows the exchange rate to be determined by supply & demand
This system prevents exchange rates from falling into any prespecified range.
Includes U.S. dollar & Japanese Yen.
What is a Trade Surplus?
The result of a nation exporting more than it imports.
exporting more goods than it imports = positive trade balance
What is a Trade Deficit?
The result of a nation importing more than it exports.
importing more than it exports = negative trade balance
What is the Balance of Trade?
The relationship between a nation's imports and its exports.
Nations seek to keep a "_______ ___ _______" with values of imports equal to values of exports.