Chapter 7

quota

- a numerical limit a government imposes on the quantity of a good that can be imported into that country.

autarky

- a situation in which they did not trade with other countries

tariff

- a tax imposed by a government on imports

World Trade Organization

- an international organization that oversees international trade agreements. - replaced GATT, which promoted free trade - generally aids in negotiating trade agreements that include not only goods and services but also intellectual property.

opposition to WTO

- anti-globalization forces: lesser developed countries have less strict regulations, creating perception of unfairness, free trade and foreign investment might "destroy" distinctive cultures - "old-fashioned" protectionists: restricting trade saves jobs and protects high wages, infant industries, and national security. - people perceiving WTO first-world bias: the WTO favors high-income countries, inherent bias toward profits rather than equity.

comparative advantage

- being able to produce something at a lower opportunity cost than someone else - constantly changing, you can lose your comparative advantage - means that trade can still be advantageous for both nations - basis for trade

absolute advantage

- being able to produce with fewer resources

what man-made sources can cause a comparative advantage?

- climate and natural resources - relative abundance of labor and/or capital - technological differences - external economies

imports

- goods and services bought domestically but produced in other countries

exports

- goods and services produced domestically but sold in other countries - US and China are the two highest exporting countries

quotas and voluntary export restraints

- limits unilaterally imposed upon by one nation (quotas) or negotiated between (VERs) countries on the quantity of a good imported by one country from another.

why don't we see complete specialization in the real world?

- not all goods and services are traded internationally - production of most goods involves increasing opportunity costs - rates for products differ

dumping

- selling a product for a price below its cost of production

what is one effect of tariffs and quotas?

- the cost jobs outside the industries immediately affected

barriers to trade

- the imposition of higher standards on imported goods - many governments also restrict imports of certain products on national security grounds, fearing that in times of war, they would not have access to those products.

who is harmed when individual nations move from autarky to free trade?

- the owners of the firms that went out of business

terms of trade

- the ratio at which a country can trade its exports for imports from other countries - no country would accept terms of trade worse than its opportunity cost

free trade

- trade between countries that is without government restrictions