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60 Cards in this Set

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  • Back
Buying something at a low price in one market and reselling it at a higher price in another market.
The difference between what a person would be willing to pay and what she actually has to pay to buy a certain amount of a good. It is the area below the demand curve and above the price level.
consumer surplus
The difference between what a producer is paid for a certain amount of a good and the lowest price she requires in order to supply that amount. It is the area above the supply curve and below the price level.
producer surplus
A nation has an absolute advantage in a commodity it produces with higher productivity than the rest of the world.
absolute advantage
A method of exchanging goods and services directly for other goods and services without using a separate unit of account or medium of exchange.
barter trade
The mechanism that explains differences in (relative) prices in different countries, which in turn gives rise to trade between countries.
basis for trade
A nation has a comparative advantage in the production of those goods that (compared to other goods and countries in the world) it produces at a low opportunity cost. A country will have a comparative advantage in one or more commodities, whether or not it has absolute advantages.
comparative advantage
A school of thought that was dominant in Europe between the 16th century and the 18th century. It advocates trade restrictions through restriction of imports and expansion of exports, so as to accumulate gold and foreign exchange.
A diagram showing the combinations of different goods that an economy can produce with full employment of existing resources and available techniques.
production-possibility curve
The ratio of the price received for a country’s exports to the price it pays for its imports.
terms of trade
An illustration of the different combinations of two goods that would provide the community with the same level of well-being.
community indifference curve
A country is relatively abundant (scarce) in a factor of production if the ratio of the endowment of that factor to other factors in the country is higher (lower) than in the rest of the world.
factor abundance (scarcity)
A good is intensive in a factor of production if the value of that factor accounts for a greater share of total production cost in that good than in any other good.
factor intensity
A country will export the good that intensively uses the country’s abundant (cheap) factor of production and will import the good that intensively uses its scarce (expensive) factor of production.
Heckscher-Ohlin (H-O) theory
Under certain assumptions, free trade will equalize not only commodity prices between countries but also factor prices, so that all laborers will earn the same real wage rate and all units of land will earn the same real rental return in both countries, regardless of the factor supplies or the demand patterns in the two countries.
factor price equalization theorem
The degree of concentration of a factor in the production of a commodity or group of commodities.
factor specialization
A factor that accounts for the same share of the value of output in all commodity lines.
neutral factor
The principle that a factor’s price changes by a greater percentage than the change in the commodity price that caused it.
magnification effect
Under certain assumptions, a change in product prices unambiguously raises the return to the factor used intensively in the rising price industry and lowers the return to the factor used intensively in the falling price industry, regardless of which goods the owners of the factors prefer to consume.
Stolper-Samuelson theorem
The percent reduction in average costs achieved by expanding all inputs by a given percentage.
economies of scale
Productivity gains and cost reductions that an individual firm reaps from the expansion of other firms in the same geographic area.
external economies of scale
The theory that trade between two countries increases as the size and proximity of the countries increase.
gravity model of trade
Productivity gains and cost reductions that a firm reaps from expanding its own scale of production.
internal economies of scale
Two way trade in similar products between countries. IIT can be measured as the difference between total trade [X+M] and net trade │X-M│.
intra-industry trade
A market structure with many firms selling differentiated products, and low barriers to entry and exit in the industry. It is like monopoly in that each firm has some control over the price it charges, because products are differentiated. Yet, like perfect competition, free entry and exit of other firms in the industry push each firm toward zero net profit.
monopolistic competition
A market structure with a few firms supplying most of the output. Firms know that their actions affect each other.
A tariff that is set as a percentage of a value of a good when it reaches the importing country.
ad valorem tariff
The welfare loss to consumers in the importing nation that corresponds to their being forced to cut their total purchases of a good as a result of the tariff.
consumption effect
Consumer loss from a tariff that accrues to neither the government nor producers.
deadweight loss
The percentage by which the entire set of a nation’s trade barriers raises the industry’s value added per unit of output.
effective rate of production
A tariff set at the rate that maximizes the gains for a large country (at the expense of foreign countries). Technically, the optimal rate, as a fraction of the price paid to foreigners, equals the reciprocal of the elasticity of supply of a country’s imports.
nationally optimal tariff
“Small” countries that cannot affect the world price of the goods and services they trade. In these countries, the import supply curve is infinitely elastic.
price-taking countries
The cost of shifting to more expensive domestic production from an import competing sector that is protected by a tariff on foreign goods
production effect
A tariff set so high that it reduces imports to zero.
prohibitive tariff
A tariff stipulated as a money amount per physical unit of the import.
specific tariff
An international organization of most of the world’s countries; it oversees governmental policies regarding international trade. Its chief purposes are to liberalize trade and limit unfair export policies such as subsidies.
world trade organization
Directs that a product made or assembled in a country must have a certain amount of “domestic value,” in the form of local factors of production that are used in (or locally made components that are part of) the finished product.
domestic content requirements
A way of allocating import licenses in which the government simply assigns fixed shares to firms, often based on the shares of imports the firms had before the quota was imposed.
fixed favoritism
A legal right to import goods subject to quotas or other nontariff barriers. Import licenses can be allocated by governments using competitive auction, fixed favoritism, or resource using application procedures.
import license
A limit on total quantity of imports allowed into a country each year, the most common nontariff trade barrier
import quota
An agreement between two nations to levy tariffs on each other at rates as low as those levied on any other country.
most favored nation status
Part of the U.S. Trade Act of 1974. It gives the President power to impose import barriers against goods from a country using “unfair trade practices” to limit imports from the U.S. and other countries.
Section 301
Nontariff barriers to trade that are equivalent to quotas. Exporting countries are coerced by the importing country into allocating a limited quota of exports. They are not legislated and can be imposed with or without formal international negotiations.
Voluntary export restraints
Government financial assistance to relocate and retrain workers (and firms) for re employment in expanding sectors and away from sectors that are declining as a result of import competition.
adjustment assistance
Conditions that prevent the market from equating the social costs and benefits with the private costs and benefits of an economic activity. For example, the market price of cigarettes does not reflect the indirect effect (externality) on third parties (other than the producer and the smoker), resulting in too many cigarettes being produced and consumed. The total social cost of smoking is higher than the private cost. Other distortions arise from conscious government policy. For example, the U.S. government subsidizes the production of tobacco, artificially increasing production and (potentially) flooding the world with cheap American cigarettes.
A case in which agents believe that a goal will be achieved (or will fail) regardless of their own contribution. Thus, they do not contribute, in the hope of “riding free” if the cause succeeds.
free-rider problem
The notion that tariffs are an important source of public revenues for poor countries because it is difficult for them to collect taxes.
developing government argument
The argument that a new industry (especially in a less-developed country) needs protection until it attains a competitive level of cost (and output) in world markets.
infant industry argument
A world that contains market distortions.
second best world
This guideline states that it is more efficient to use those policy tools that are closest to the sources of the distortions separating private and social benefits or costs.
specificity rule
Public sympathy for groups whose incomes fall due to import competition, either suddenly or during a general economic depression.
sudden damage effect
When the free-rider problem results in a tendency for tariffs and other import barriers to be higher on finished goods sold to large groups of consumers than on intermediate goods sold to smaller purchasers from industry.
tariff escalation
Tariffs sanctioned under the International Anti Dumping Code (signed by most members of the WTO) to counteract or prevent dumping. Some countries may levy antidumping duties not to counteract export dumping but to further protect domestic import-competing producers without levying import tariffs.
antitdumping duty
Retaliatory duties against a foreign government that is subsidizing exports into your national market.
countervailing import duty
A form of international price discrimination in which an exporting firm either sells at a lower price in a foreign market than it charges in other markets (usually its domestic market) or sells its exports at a price that is below its costs or fair market value.
Government policy to encourage export of goods and discourage sale of goods on the domestic market through low cost loans or tax relief for exporters, or government-financed international advertising or research and development (R&D). The WTO prohibits most subsidies directly linked to the volume of exports.
export subsidy
Dumping that goes on indefinitely, as opposed to predatory dumping or “cyclical dumping,” which occurs only during periods of economic downturn. It is used by firms that can price-discriminate between markets.
persistent dumping
Dumping that occurs when an exporting firm temporarily reduces the price charged to some foreign buyers with the intent of eliminating competitors and later raising its price after the competition is dead.
predatory dumping
Temporary protection against a sudden surge of imported goods
safeguard policy
A government campaign to develop export advantage in targeted sectors or to gain market share in global industries characterized by oligopolies.
strategic trade policy