competition Flashcards
(32 cards)
why do nations trade
countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in
what are the two reasons nations trade
absolute and comparative advantage
what is absolute advantage
when a country can produce at a lower cost than any other country (or only country that can provide a product)
what is comparative advantage
each country specializes in the goods it can produce most readily and cheaply, they then trade them for those that other countries can produce most readily and cheaply
what are the three ways of measuring international trade
balance of trade
trade deficit
balance of payments
explain balance of trade
exports-imports
explain trade defecit
more imports than exports
explain balance of payments
total inflow - total outflow
what are barriers to international trade
keeps firms selling to one another in foreign markets
what are the reasons for restricting trade
from internal political and economic pressures to mistrust of other nations
what are the three types of trade barriers
natural barriers (distance)
tariff barriers
nontariff barriers
explain what tariff barriers are
tax imposed by a nation on imported goods. protective tariffs make imported products less attractive to buyers than domestic products
what are nontariff barriers
nontax measures imposed by a government to favor domestic over foreign suppliers
what are 5 examples of nontariff barriers
import quotas
embargo
foreign exchange control
currency devaluation
what are the 6 reasons FOR trade restrictions
- to equalize a nation’s balance of payments
- to protect new or weak industries
- to protect domestic jobs
- to protect national security
- to protect the health of citizens
- to retaliate for another country’s trade restrictions
what are the 5 reasons AGAINST trade restrictions
- higher prices for consumers
- restriction of consumers’ choices
- loss of jobs
- misallocations of international resources
- to retaliate for another country’s trade restrictions
what are the two organisations working to foster trade
world bank
international monetary fund (IMF)
what does the world bank do to foster trade (3)
- offers low interest loans to developing nations
- to build infrastructure
- offer loans to relieve debt burdens
what does the international monetary fund do to foster trade
- promotes trade through financial cooperation
- short-term loans to members nations, unable to meet budgetary expenses
- lender of last resort for troubled nations
- requires significant commitments from the borrowing nations to address problems
what is the role of economic international economic communities
to reduce barriers among members of the economic community. also, often establishes common tariffs and other trade barriers toward non-member countries
what are the 6 methods of entering global markets
licensing
exporting
joint ventures
direct foreign investment
strategic alliances
trading companies
explain licensing as a method of entering global markets
a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation
explain exporting as a method of entering global markets
manufacturer produce in own country and export for sale in foreign markets
explain joint ventures as a method of entering global markets
a partnership formed between domestic and foreign firm
