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52 Cards in this Set

  • Front
  • Back
Agglomeration Economies
a rich country specializes in manufacturing niches and gains productivity through groups of firms clustered togehter.
Economic Interdependence
all aspects of a nation's economy are linked to the economies or its trading partners
the process of greater interdependence among countries and their citizens
Law of Comparative Advantage
when each nation specializes in teh production of a good in which it has relative advantage--and in turn, all countries benefit
the ratio of a nations exports and imports as a percentage of its GDP
a case of national self-sufficiency or absence of trade
Basis for Trade
why nations export and import certian products
Commodity terms of Trade
measures the relationship between the prices a nation gets for its exports and the prices it pays for its imports
community indifference
the curve that represents the tastes and preferences of all the households of a nation
complete specialization
a situation in which a country produces only one good
constant opportunity costs
a constant rate of sacrifice of one good for another as a nation slides along its production possibilies schedule
consumption gains
post-trade comsumption points outside a nations production possibilities schedule
dynamic gains from international trade
the effect of trade on the countries growth rate (and on the volume of additional resources made available by the trading country)
exit barriers
cost conditions that make lengthy industry exit a rational response by companies
free trade
a system of open markets between countries in which countries concentrate their production on goods they can make the most cheaply
gains from international trade
gains trading partners simultaineously enjoy dur to specialization and the division of labor
importance of being unimportant
when one trading nation is significantly larger than the other--the larger nation attains fewer gains from trade than the smaller one
increasing opportunity costs
when each additional unit of one good produced requires the sacrifice of increasing amounts of the other good
indifference curve
a curve depicting the various combinations of two commodities that are equally preferred in the eyes of the consumer
labor theory of value
the cost or price of a good depends exclusively on the amount of labor required to produce it
marginal rate of transformation(mrt)
the of the production possibilites schedule that shows the amount of one product a nation must sacrifice to get one additional unit of the other product
believe that a nation could regulate its domestic and international affairs so as to promote its own intresets through a strong foriegn trade sector
no-trade boundary
the terms of trade limit at which a country will cease to export a good
outer limits for the equilibrium terms of trade
defined by the domestic cost ratios of trading nations
partial specialization
when a country specializes only partially in the production of a good in which it has the comparative adv
price-specie-flow doctrine
Hume's theory that a favorable balance of trade was possible only in the short run, and that eventually it would be automatically eliminated via chages in product prices
principal of absolute adv
in a two nation, two product world, international specialization and trade will be benefitial when one nation has an absolute cost advantage in one good and the other nation has an absolute cost adv in the other
production gains
increases in production resulting from specialization in the product of compartive adv
production possibilites schedule
shows various alternative combinations of two goods that a nation can produce when all of its factor inputs are use din their most efficient manner
region of mutually beneficial trade
the area that is bounded by the cost ratios of the two trading countries
terms of trade
the relative prices at which two products are traded
theory of reciprocal demand
relative demand conditions determine what the actual terms of trade will be within the outer limits of the terms of trade
trade triangle
an area in a production possibilites diagram showing a countries exports, imports, and equlibrium of trade
trading possibilies line
a line in a production possibilities diagram representing the equilibrium terms-of-trade ratio
buisness services
non storable or intangible products ie, tourism, banking etc
capital/labor ratio
a country's ratio of capital inputs to labor inputs
distribution of income
the distribution of wages earned across a country
dynamic comparitive adv
a changing pattern in comp adv, govts can establish policies to promote opportunities for changes in comparative adv over time
economics of scale
when increasing all inputs by the same proportion results in a greater proportion of total output
factor-endowment theory
asserts that a country exports those goods that use its abundant factor more intensively
factor-price equalization
the tendency in free trade to cause cheap factors of production to become more expensive, and the expensive ones to become cheaper
heckscher-ohlin theory
differences in realtive factor endowments among nations underlie the basis dor trade
home market effect
countries will specialize in products for which there is a large domestic demand
increasing returns to scale
when increasing all inputs by the same proportion results in a total output to increase by a greater proportion
industrial policy
government policy that is actively involved in creating comparative advantage
inter vs intraindustry specialization
inter- when each nation specializes in its industry of most profit, intra- focusing on the production of products within a given industry
inter vs intraindustry trade
inter- trade btw nations intra, two way trade in a similar commodity
leontief paradox
exports are less capital intensive than import-competing goods---contradicts the factor-endowment thoery
product life cycle theory
the cycle where manufactured goods for the home country are exports, then looses comparative adv and the product becomes an import
specific factors theory
considers the income-distribution effects of trade when factor inputs are immobile among industries in the short run
theory of overlapping demands
nations with similar per capita incomes will have overlapping demans structures & will likely consume the same manufactured goods (ie wealthy nations trade with wealthy ones and poor with poor)
transportation costs
the costs of moving goods from one nation to another