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Chapter 8
Micro
| Term | Definition |
|---|---|
| Imports | goods and services purchased from other countries |
| Exports | goods and services sold to other countries |
| Autarky | situation in which a country cannot or does not trade with other countries |
| Globalization | phenomenon of growing economic linkages among countries |
| Comparative Advantage | country produces a good/service if the opportunity cost of producing the food or service is lower for that country than for other countries |
| Ricardian model of international trade | analyzes international trade under the assumption that opportunity costs are constant (PPF's are linear) |
| Main sources of comparative advantage | 1. Differences in tech- able to produce a good at lower cost 2. International differences in climate 3. Differences in factor endowments 4.Increasing returns to scale |
| Heckscher-Ohlin model | comparative advantage is derived from factor endowments (labor&capital) that are relatively abundant in that country |
| Factor intensity | -measure of which factors is used relatively greater quantities than other factors in production |
| Increasing Returns to Scale | if output can be increased using a less than proportional increase in the factors of production -factor productivity increases as output increases-can give rise to monopoly-can give rise to international trade |
| Domestic Demand Curve | shows how the quantity of a good demanded by domestic consumers depends on the price of that good |
| Domestic Supply Curve | shows how the quantity of a good supplied by domestic producers depends on the price of that good |
| World Price | price at which that good can be bought or sold abroad -if wp is lower than the autarky price, trade leads to imports and a fall in domestic price compared to wp |
| Consumer Surplus | net economic value consumers get from consuming a good or service |
| Producer Surplus | net economic value of producing a good or service |
| Imports ________ consumer surplus, but __________ producer surplus | increase, decrease |
| Exports ________ consumer surplus, but _________ producer surplus | decrease, increase |
| If ______ is higher than the autarky price, trade leads to exports and a rise in the domestic price compared with the wp | world price |
| Free Trade | when government does not attempt either to reduce or to increase the levels of exports and imports that occur naturally as a result of supply and demand |
| trade protection | policies that limit imports |
| Tariff | tax on imports |
| Import quota | legal limit on the quantity of a good that can be imported |
| Advocate of tariffs and import quotas offer a variety of arguments. 3 common ones are: | 1. national security 2. job creation 3. the infant industry argument |
| International trade agreements | treaties in which a country promises to engage in less trade protection against the exports of other countries in return for a promise by other countries to do the same for its own exports-NAFTA |
| World Trade Organization | multinational organization as well as adjudicate trade disputes between member countries |
| European UNion | customs union amonf 27 European nations |
| Offshore Outsourcing | takes place when businesses hire people in another country to perform various tasks |
Created by:
kthomas96
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