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52 Cards in this Set
- Front
- Back
Agglomeration Economies
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a rich country specializes in manufacturing niches and gains productivity through groups of firms clustered togehter.
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Economic Interdependence
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all aspects of a nation's economy are linked to the economies or its trading partners
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Globablization
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the process of greater interdependence among countries and their citizens
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Law of Comparative Advantage
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when each nation specializes in teh production of a good in which it has relative advantage--and in turn, all countries benefit
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Openness
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the ratio of a nations exports and imports as a percentage of its GDP
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Autarky
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a case of national self-sufficiency or absence of trade
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Basis for Trade
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why nations export and import certian products
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Commodity terms of Trade
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measures the relationship between the prices a nation gets for its exports and the prices it pays for its imports
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community indifference
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the curve that represents the tastes and preferences of all the households of a nation
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complete specialization
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a situation in which a country produces only one good
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constant opportunity costs
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a constant rate of sacrifice of one good for another as a nation slides along its production possibilies schedule
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consumption gains
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post-trade comsumption points outside a nations production possibilities schedule
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dynamic gains from international trade
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the effect of trade on the countries growth rate (and on the volume of additional resources made available by the trading country)
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exit barriers
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cost conditions that make lengthy industry exit a rational response by companies
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free trade
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a system of open markets between countries in which countries concentrate their production on goods they can make the most cheaply
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gains from international trade
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gains trading partners simultaineously enjoy dur to specialization and the division of labor
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importance of being unimportant
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when one trading nation is significantly larger than the other--the larger nation attains fewer gains from trade than the smaller one
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increasing opportunity costs
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when each additional unit of one good produced requires the sacrifice of increasing amounts of the other good
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indifference curve
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a curve depicting the various combinations of two commodities that are equally preferred in the eyes of the consumer
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labor theory of value
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the cost or price of a good depends exclusively on the amount of labor required to produce it
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marginal rate of transformation(mrt)
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the of the production possibilites schedule that shows the amount of one product a nation must sacrifice to get one additional unit of the other product
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mercantilists
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believe that a nation could regulate its domestic and international affairs so as to promote its own intresets through a strong foriegn trade sector
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no-trade boundary
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the terms of trade limit at which a country will cease to export a good
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outer limits for the equilibrium terms of trade
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defined by the domestic cost ratios of trading nations
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partial specialization
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when a country specializes only partially in the production of a good in which it has the comparative adv
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price-specie-flow doctrine
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Hume's theory that a favorable balance of trade was possible only in the short run, and that eventually it would be automatically eliminated via chages in product prices
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principal of absolute adv
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in a two nation, two product world, international specialization and trade will be benefitial when one nation has an absolute cost advantage in one good and the other nation has an absolute cost adv in the other
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production gains
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increases in production resulting from specialization in the product of compartive adv
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production possibilites schedule
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shows various alternative combinations of two goods that a nation can produce when all of its factor inputs are use din their most efficient manner
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region of mutually beneficial trade
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the area that is bounded by the cost ratios of the two trading countries
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terms of trade
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the relative prices at which two products are traded
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theory of reciprocal demand
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relative demand conditions determine what the actual terms of trade will be within the outer limits of the terms of trade
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trade triangle
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an area in a production possibilites diagram showing a countries exports, imports, and equlibrium of trade
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trading possibilies line
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a line in a production possibilities diagram representing the equilibrium terms-of-trade ratio
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buisness services
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non storable or intangible products ie, tourism, banking etc
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capital/labor ratio
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a country's ratio of capital inputs to labor inputs
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distribution of income
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the distribution of wages earned across a country
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dynamic comparitive adv
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a changing pattern in comp adv, govts can establish policies to promote opportunities for changes in comparative adv over time
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economics of scale
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when increasing all inputs by the same proportion results in a greater proportion of total output
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factor-endowment theory
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asserts that a country exports those goods that use its abundant factor more intensively
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factor-price equalization
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the tendency in free trade to cause cheap factors of production to become more expensive, and the expensive ones to become cheaper
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heckscher-ohlin theory
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differences in realtive factor endowments among nations underlie the basis dor trade
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home market effect
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countries will specialize in products for which there is a large domestic demand
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increasing returns to scale
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when increasing all inputs by the same proportion results in a total output to increase by a greater proportion
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industrial policy
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government policy that is actively involved in creating comparative advantage
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inter vs intraindustry specialization
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inter- when each nation specializes in its industry of most profit, intra- focusing on the production of products within a given industry
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inter vs intraindustry trade
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inter- trade btw nations intra, two way trade in a similar commodity
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leontief paradox
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exports are less capital intensive than import-competing goods---contradicts the factor-endowment thoery
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product life cycle theory
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the cycle where manufactured goods for the home country are exports, then looses comparative adv and the product becomes an import
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specific factors theory
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considers the income-distribution effects of trade when factor inputs are immobile among industries in the short run
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theory of overlapping demands
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nations with similar per capita incomes will have overlapping demans structures & will likely consume the same manufactured goods (ie wealthy nations trade with wealthy ones and poor with poor)
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transportation costs
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the costs of moving goods from one nation to another
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