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Absolute advantage - the ability of an individual, a firm, or a country to produce

more of a good or service than competitors, using the same amount of resources

International trade

Comparative advantage - the ability to produce a good at a lower opportunity cost

than another producer

Too goods

Law of comparative advantage - the individual, firm, region, or country with the
lowest opportunity cost of producing a particular good should specialize in that good

Trade within the US

Export - commodities (goods or services) sold to a foreign country

Goods sold in China

Import - commodities (goods or services) bought from a foreign country

Goods bought in China

Trade barrier - a means of preventing a foreign product or service from freely

entering a nation's territory

Not letting an object enter the US

Import quota - a limit on the number of products in certain categories that a nation
can import

China can only import 1000 products

Voluntary export restraint - a self-imposed limitation on the number of products

shipped to a particular country

Limited number of products shipped to China

Customs duty - a tax placed on goods coming into the country

Tax on tea coming into the US

Tariff - a government tax on imports or exports

Government taxes imports and exports

Trade war - a cycle of increasing trade restrictions

Trade restrictions on apples

Protectionism - the policy of imposing duties or quotas on imports in order to protect

home industries from overseas competition

A raise in tariffs

Infant industry - a young industry that may need temporary protection from
competition from the established industries of other countries to develop an
acquired comparative advantage

A new industry that needs protection form competition

International free trade agreement - agreement that results from cooperation

between at least two countries to reduce trade barriers and tariffs and to trade with
each other

When countries trade with each other

World Trade Organization - an international organization based in Geneva that

monitors and enforces rules governing global trade

Organization that enforces rules

European Union - an international organization of European countries formed after

World War II to reduce trade barriers and increase cooperation among its members


Free-trade zone - area where people can buy goods from other countries without
paying extra taxes

When you dont have to pay taxes when trading with other countries

NAFTA - North American Free Trade Agreement; allows open trade with US, Mexico,
and Canada

Trading with Mexico

Exchange rate - the charge for exchanging currency of one country for currency of

The US dollar is greater than the Peso

Appreciation - an increase in price or value

An increase in price of Barbies

Depreciation - a decrease in price or value

Decrease in price of Barbies

Foreign exchange market - The market in which the currencies of different countries
are bought and sold.

Using the US dollar in Mexico

Fixed exchange rate system - a currency system in which governments try to keep
the values of their currencies constant against one another

Trying to keep the US dollar consistent with the peso

Flexible exchange rate system - a currency system that allows the exchange rate to
be determined by supply and demand

Supply and demand

Balance of trade - the difference in value over a period of time of a country's

imports and exports of merchandise

Value of imports and exports

Developed nation - A nation with established agriculture and industry, advanced

technology, and a strong educational system.

United States

Per capita gross domestic product - nations GDP divided by population

US GDP divided by the US population

industrialization - Process of industrial development in which countries evolve

economically, from producing basic, primary goods to using modern factories for
mass-producing goods. At the highest levels of development, national economies
are geared mainly toward the delivery of services and exchange of information.

When China starts off by producing simple objects and as time goes on they
produce complex objects

Subsistence agriculture - Agriculture designed primarily to provide food for direct

consumption by the farmer and the farmer's family

Farms providing food

Literacy rate - percentage of people who can read and write

Percentage of Americans who can read and write

Infant mortality rate - the death rate during the first year of life

When a baby dies

Infrastructure - the stock of basic facilities and capital equipment needed for the
functioning of a country or area

Capital equipment

Population growth rate - explains how fast a given population grows

Growth of population

Internal financing - financing derived from the savings of a country's citizens

Countrys citizens

Foreign investment - investment originating from other countries

Investment from China

Foreign direct investment - the establishment of an enterprise by a foreigner

Enterprise by a foreigner from China

Foreign portfolio investment - the entry of funds into a country when foreigners
make purchases in the country's stock and bonds market

When foreigners pay taxes

World Bank - a United Nations agency created to assist developing nations by loans
guaranteed by member governments

When the United States loans money to China

United Nations Development Program - United Nations program dedicated to

elimination of poverty through development

Trying to eliminate poverty

International Monetary Fund - a United Nations agency to promote trade by

increasing the exchange stability of the major currencies

Agencies that promote trade

Debt rescheduling - lengthening the time of debt repayment and forgiving, or

dismissing, part of the loan

Increasing interest

Stabilization program - An agreement between a debtor nation and the IMF in which
the nation agrees to revise its economic policy

Revising economic policy

Privatization - when the government sells its industries to individuals or private


Target is sold to a private company

Glasnosts - effort to allow openness to discuss communists Russia's problems

Openly discussing Russias problems

Special economic zones - specific area within a country in which tax incentives and
less stringent environmental regulations are implemented to attract foreign
business and investment

Area where taxes are strong