2 International Trade and Trade Policy Free Online FlashCards

What is international trade?

International trade is the exchange of goods and services across national borders.

What influences a country's trade pattern?

Trade patterns reflect resources and production factors, productivity and technology, geography and transport costs, scale and supply chains, and consumer preferences.

What is comparative advantage?

Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.

How does absolute advantage differ from comparative advantage?

Absolute advantage means producing more with the same resources; comparative advantage means producing at a lower opportunity cost.

Which country has comparative advantage in shirts in the example?

Country B has comparative advantage in shirts because its opportunity cost of one shirt is 1 unit of steel, compared with 1.5 units in Country A.

Why may trade benefit some groups but burden others?

Trade's gains and costs are uneven: consumers and export-oriented firms may benefit, while some competing domestic producers and workers face adjustment.

What is a tariff, and what is one trade-off it creates?

A tariff is a tax on imported goods. It can protect competing domestic producers but may raise prices for consumers and businesses using imported inputs.

What does a trade quota do?

A quota limits the quantity or value of a good that may be imported or exported; by restricting supply directly, it can raise domestic prices.

What is a producer subsidy?

A subsidy is government support for producers, such as grants or tax benefits; it can help an industry develop and affect competition and trade flows.

What are non-tariff measures?

Non-tariff measures are rules or procedures, such as standards, testing, licensing, or customs requirements, that affect market access.

What defines a regional trade agreement?

A regional trade agreement gives its members more favorable trade conditions than it gives nonmembers; participants need not all be geographically adjacent.

How does a free-trade area treat nonmembers?

In a free-trade area, members reduce or remove trade barriers among themselves but keep their own trade policies toward nonmembers.