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Specialization without trade.
- Conclusion:
- When contries specialize, total world output increases, and, therefore, the potential for greater total world consuption also increases.
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Specialization with trade.
Global trade allows a country to consume a combination of goods that exceed its production possibilities curve.
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Comparative Advantage
The ability of a country to produce a good at a lower opportuniy cost than another country
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Absolute advantage
The ability of a country to produce a good using fewer resources than another country.
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Free trade
The flow of goods between countries without restrictions or special taxes.
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Protectionism
The goverment's use of embargoes, tariffs, quotas, and other restrictions to protect domestic procedures from foreign competitions
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Embargo
A law that bars trade with another country
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Tariff
A tax on an import
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World Trade Organization (WTO)
An international organization of member countries that oversees international trade agreements and rules on trade disputes.
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Quota
A limit on the quantity of agood that may be imported in a giving time period.
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Arguments for Protection
- Infant Industry Argument
- National Security Argument
- Employment Argument
- Cheap Foreign Labor Argument
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Balance of payments
A bookeeping record of all the international transactions between a country and another countries during agiven period.
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Balance of Trade
The values of a nation's imports substracted from its exports. Balance of trade can be given in term of goods, services, or goods and services.
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Exchange rate
The number of units of one nation's currency that equals one unti of another nation's currency.
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Depreciation of currency
`A fall in the price of one currency relative to another
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Appreciation of currency
A rise in the price of one currency relative to another.
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