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deep integration

answer

economic integration beyond removal of barriers at each country's border

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foreign direct investment (FDI)

answer

the purchase of physical assets such as real estate or businesses by a foreign company or individual. It can be outward or inward.

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gross domestic product (GDP)

answer

the market value of all final goods and services produced in a year inside a nation

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index of openness

answer

a measure of the importance of trade to a national economy, consisting of exports plus imports divided by GDP

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quota

answer

a numerical limit on the volume of imports

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regional trade agreement (RTA)

answer

agreements between two or more countries, each offering the others preferential access to its markets. RTAs provide varying degrees of access and variable amounts of deep integration

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shallow integration

answer

the elimination or reduction of tariffs, quotas, and other border-related barriers (such as customs procedures) that restrict the flow of goods across borders

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tariffs

answer

taxes imposed on imports. Tariffs raise the price to the domestic consumer to reduce the quantity demanded.

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transaction costs

answer

the costs of gathering market information, arranging a market agreement, and enforcing the agreement. Transaction costs include legal, marketing, and insurance costs, as well as quality checks, advertising, distribution, and after-sales service costs.

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Bretton Woods conference

answer

a small town in NH that was, in July 1944, the site of talks establishing the international financial and economic order after WWII. The IMF and the World Bank emerged from the Bretton Woods conference.

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common external tariff

answer

the policy of customs unions in which the members adopt the same tariffs toward nonmembers

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common market

answer

a regional trade agreement whose member nations allow the free movement of inputs as well as outputs, and who share a common external tariff toward nonmembers

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customs union

answer

an agreement among two or more member countries to engage in free trade with each other and to share a common external tariff toward nonmembers

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Doha Development Agenda

answer

the name for the trade negotiations that began in 2000 under the auspices of the WTO

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Doha Round

answer

the current WTO round of trade negotiations

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economic union

answer

the most complete form of economic integration, these unions are common markets that also harmonize many standards while having the same substantially similar fiscal and monetary policies. Economic unions may include a common currency.

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foreign exchange reserves

answer

assets held by the national monetary authority that can be used to settle international payments. Dollars, euros, yen, and monetary gold are examples of reserves.

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free riding

answer

occurs when a person lets others pay for a good or service, or lets them do the work when he or she knows that he or she cannot be excluded from consumption of the good or from the benefits of the work

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free-trade area

answer

a preferential trade agreement in which countries permit the free movement of outputs across their borders as long as the outputs originate in one of the member countries

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General Agreement on Tariffs and Trade (GATT)

answer

the main international agreement covering the rules of trade in most, but not all, goods. The GATTs origins can be traced to negotiations that took place in 1946, after WWII.

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IMF conditionality

answer

the changes in economic policy that borrowing nations are required to make in order to receive IMF loans. The changes usually involve policies that reduce or eliminate a severe trade deficit and/or a central government budget deficit. In practical terms, they involve reduced expenditures by the government and by the private sector and increased taxes.

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institution

answer

a set of rules of behavior. Institutions set limits, or constraints, on social, political, and economic interaction. An institution may be informal or formal.

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International Monetary Fund (IMF)

answer

one of the original Bretton Woods institutions, IMF responsibilities include helping member countries that suffer from instability or problems with their balance of payments. It also provides technical expertise in international financial relations.

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lender of last resort

answer

in international economics, a place where nations can borrow after all sources of commercial lending have dried up. Today, the IMF fills this role.

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most-favored nation (MFN) status

answer

the idea that every member of the WTO is required to treat each of its trading partners as well as it treats its most favored trading partner. In effect, MFN prohibits one country from discriminating against another.

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national treatment

answer

the idea that foreign firms operating inside a nation should not be treated differently than domestic firms

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non-diminishable

answer

a good or service that is not reduced by consumption. For example, listening to a radio broadcast does not reduce its availability to others

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nondiscrimination

answer

the notion that national laws should not treat foreign firms differently than domestic firms

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nonexcludable

answer

when people wo do not pay for a good or service cannot be excluded form its consumptions. National defense is an example

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nonrival

answer

see Non-diminishable

question

partial trade agreement

answer

an agreement that covers only some goods and/or services and is less than a free-trade agreement

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public goods

answer

goods that share two characteristics: nonexludability and nonrivalry or nondiminishability. If they are exludable but nondiminishable goods, they are sometimes called collective goods.

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sovereignty

answer

free from outside intervention, or self-determining

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trade bloc

answer

a preferential trade area; a group of nations that reduces or eliminates barriers between themselves while maintaining higher tariffs and other barriers to trade against nonmember, third party countries.

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trade creation

answer

the opposite of trade diversion. Trade creation occurs when trade policies cause a shift in production from a higher cost producer to a lower cost producer.

question

trade diversion

answer

the oposite of trade creation. Trade diversion occurs when trade policies cause a shift in production and imports from a lower cost producer to a higher cost producer.

question

trade rounds

answer

multilateral negotiating rounds under the auspices of the GATT or the WTO

question

Uruguay Round

answer

the latest round of tariff negotiations within the GATT framework, the Uruguay Round began in 1986 in Punta del Este, Uruguay, concluded in 1993, and was ratified in 1994. Among other accomplishments, it created the WTO.

question

World Bank

answer

a Bretton Woods institution, originally charged with the responsibility for providing financial and technical assistance to the war-torn economies of Europe. In the 1950s, the World Bank began to shift its focus to developing countries.

question

World Trade Organization (WTO)

answer

an umbrella organization created by the Uruguay Round of the GATT talks, the WTO houses the GATT and many other agreements. It is the main international body through which multilateral trade talks take place

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absolute productivity advantage

answer

a country has an absolute productive advantage in a good if its labor productivity is higher; that is, it is able to produce more output with an hour of labor than its trading partner can

question

autarky

answer

the complete absence of foreign trade; total self-sufficiency of a national economy

question

comparative productivity advantage

answer

achieved in a good when a country has lower opportunity costs of producing the good than those of its trading partners

question

competitive advantage

answer

the ability to sell a good at the lowest price. Competitive advantage may be the result of high productivity and a comparative advantage. Alternatively, it may be the result of government subsidies for inefficient industries.

question

economic restructuring

answer

a movement from one point to another along a country's production possibility curve

question

gains from trade

answer

the increase in consumption made possible by specialization and trade

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labor productivity

answer

the amount of output per unit of labor input

question

mercantilism

answer

economic system that arose in western Europe in the 1500s; stressed the need for nations to run trade surpluses to obtain revenues for armies and national construction projects; favored monopolies; shunned competition

question

opportunity cost

answer

the value of the best forgone alternative to the activity actually chosen

question

price line

answer

the rate at which one good trades for another in a two-good model; the slope of the price line is the relative price. The same as a trade line.

question

production possibilities curve (PPC)

answer

this curve shows the maximum amount of output possible, given the available supply of inputs. It also shows the trade-off that a country must make if it wishes to increase the output of one of its goods.

question

relative price

answer

the price of one good interms of another good.

question

resource curse

answer

the economic and/or political problems caused by an abundance of one valuable natural resources such as petroleum

question

trade adjustment assistance (TAA)

answer

government programs that offer temporary assistance to workers who lose jobs because of foreign trade or their firms moving abroad

question

trade line

answer

see Price Line

question

zero sum

answer

the costs and benefits of an activity cancel each other (equal zero).

question

demand-pull factors

answer

economic conditions in the receiving country that "pull" in migrants

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derived demand

answer

demand for a good or service that is derived from the demand for something else. For example, the demand for labor is derived from the demand for goods and services.

question

factor abundance, factor scarcity

answer

these are relative terms because, strictly speaking, all factors are scarce. Relative factor abundance impolies that an economy has more of a particular factor in relation to some other factor and by comparison to another economy. Relative factor scarcity implies the opposite

question

foreign affiliate

answer

a foreign-based operation that is owned by a firm in the home country

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Heckscher-Ohlin (HO) trade theory

answer

a trade theory that predicts the goods and services that countries export and import. The theorem states that countries will export goods that require the intensive use of relatively abundant factors to produce, and import goods that require relatively scarce factors to produce.

question

intrafirm trade

answer

international trade between two or more divisions of the same company that are located in different countries

question

magnification effect

answer

the idea that a rise or decline in goods prices has a larger effect in the same direction on the income of the factor used intensively in its production

question

off-shoring

answer

the movement of some or all of a firm's activities to a foreign country

question

OLI theory

answer

a model of the determinants of foreign direct investment that is based on the key variables Ownership-Location-Internalization

question

outsourcing

answer

outsourcing is the shifting of procurement from within a firm to outside a firm. It is often used to refer to services that are purchased abroad, such as the procurement of business services in India by a firm based in Europe or the United States

question

product cycle

answer

the idea that manufactured goods go through a cycle of heavy research and development requiring experimentation in the product and manufacturing process, followed by stabilization of design and production, and in a final stage of complete standardization

question

social networks

answer

members of a migrant's family or village that provide support in the migrant's new location

question

specific factors model

answer

a trade model that allows for mobile and immobile factors of production

question

Stolper-Samuelson theorem

answer

a corollary of the Heckscher-Ohlin Theory stating that changes in import or export prices lead to change in the same direction of the income factors used intensively in its production

question

supply-push factors

answer

the factors that "push" migrants out of their home country

question

export processing zone (EPZ)

answer

a geographical region in which firms are free from tariffs as long as they export the goods that are made from imports. Rules and regulations governing EPZs vary by country, but all of them are aimed at encouraging exports, often through encouragement given to investment

question

external economies of scale

answer

scale economies that are external to a firm, but internal to an industry. Consequently, all the firms in an industry experience declining average costs as the size of the industry increases

question

externality

answer

a divergence between social and private returns

question

Grubel-Lloyd index

answer

a measure used to determine the importance of intraindustry trade

question

industrial policy

answer

a policy designed to create new industries or to provide support for existing ones

question

interindustry trade

answer

trade that involves exports and imports of goods that are produced in different industries, for example, when the United States exports cars and imports sugar cane.

question

internal economies of scale

answer

the idea that an individual firm experiences a decline in its average cost of production as it increases the number of units produced

question

intraindustry trade

answer

exports and imports of the same category of goods and/or services

question

maquiladora

answer

Mexican manufacturing firms, mostly along the U.S.-Mexico border, that receive special tax breaks

question

market failure

answer

a situation in which markets do not produce the most beneficial economic outcome. Market failure has numerous causes, including externalities and monopolistic or oligopolistic market structures.

question

monopolistic competition

answer

competition between differentiated products, combining elements of perfect competition and monopoly

question

oligopoly

answer

a market with so few producers that each firm can influence the market price

question

private returns

answer

the value of all private benefits minus all private costs, properly adjusted to take into account that some costs and benefits are in the future and must be discounted to show their value in today's dollars

question

product differentiation

answer

two products that serve similar purposes but that there are different in one or more dimensions. Most consumer goods are differentiated products.

question

rent seeking

answer

any activity by firms, individuals, or special interests that is designed to alter the distribution of income to their favor. Political lobbying, legal challenges, and bribery are common forms of rent-seeking behaviors, which use resources (labor and capital) but do not add to national output. For this reason, rent seeking is a net loss to the nation.

question

social returns

answer

social returns include private returns, but they add costs and benefits to the elements of society that are not taken into consideration in the private returns. For example, a firm that generates pollution that it does not have to clean up imposes costs on society, which causes social returns to be lower than private returns.

question

strategic trade policy

answer

the use of trade barriers, subsidies, or other industrial support policies designed to capture the profits of foreign firms for domestic firms.

question

value added

answer

the price of a good minus the value of intermediate inputs used to produce it. Value added measures the contribution of capital and labor at a given stage of production.

question

consumer surplus

answer

the difference between the value of a good to consumers and the price they have to pay. Graphically it is the area under the demand curve and above the price line

question

deadweight loss

answer

a pure economic loss with no corresponding gains elsewhere in the economy

question

effective rate of protection

answer

effective rates of protection consider levels of protection on intermediate inputs as well as the nominal tariff levied on the protected good. Effective rates are measured as the percentage change in the domestic value add after tariffs on the intermediate and final goods are levied.

question

efficiency loss

answer

a form of deadweight loss that refers to the loss of income or output that occurs when a nation produces a good at a cost higher than the world price

question

intellectual property rights

answer

intellectual property is divided into copyrights and related rights for literacy and artistic work, and industrial property rights for trademarks, patents, industrial designs, geographical indications, and the layout of integrated circuits.

question

large country case

answer

a country that purchases a significant share of the world's output of a particular good may improve its welfare by imposing a tariff that causes import prices to fall

question

nominal rate of protection

answer

the amount of a tariff (or the tariff equivalent of a quota) expressed as a percentage of the good's price

question

nontariff barrier (NTB)

answer

any trade barrier that is not a tariff. Most important are quotas, which are physical limits on the quantity of permitted imports. Nontariff barriers include red tape and regulations, rules requiring governments to purchase from domestic producers, and a large number of other practices that indirectly limit imports.

question

nontariff measure

answer

nontariff measures are nontariff barriers that are not quotas. They include red tape or cumbersome and unevenly applied rules. In general, the term refers to any regulatory or policy rules other than tariffs and quotas that reduce the physical quantity of imports or exports.

question

nontransparent

answer

not easily interpreted or understood. For example, some countries use red tape and bureaucratic rules rules to block imports

question

producer surplus

answer

the difference between the minimum price a producer would accept to produce a given quantity and the price it actually receives. Graphically, it is the area under the price line and above the supply curve.

question

quota rents

answer

the excess profits earned by foreign producers (and sometimes domestic distributors of foreign products) in an export market. Quota rents occur whenever a quota causes a price increase in the market receiving the exports.

question

Trade Related Aspects Intellectual Property Rights (TRIPS)

answer

an agreement that emerged from the Uruguay Round of the GATT. It requires increased enforcement of intellectual property.

question

transparent

answer

any trade barrier that is clearly defined as a barrier. Tariffs have the most transparency (are the most transparent) because they are usually clearly specified and published in each country's tariff code. Any disguised or hidden trade barriers cause a country's trade policy to be nontransparent.

question

voluntary export restraint (VER)

answer

an agreement between nations in which the exporting nation voluntarily agrees to limit its exports in order to reduce competition in the importing country.

International Economics Chapters 1-6 – Flashcards

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