Key-Terms for Chapter 3

Terms Definitions
International Business All business activities that involve exchanges across national
boundaries

Economics of Scale Savings from buying parts and materials, manufacturing, or marketing
in large quantities

An organization of nations formed to promote the free movement of

resources and products among its members and to create common
Economic Community
economic policies

Absolute Advantage The ability to produce a specific product more efficiently than any
other nation

Opportunity Cost The opportunity of giving up the second-best choice when making a
decision

Theory that states that a country should produce and sell to other
countries those items it produces most efficiently
Comparative Advantage

The total value of a nation’s exports minus the total value of its
imports over some period of time
Balance of Trade

Trade Deficit A negative balance of trade

Trade Surplus Favorable trade balance created when country exports more than it
imports

The total flow of money into the country minus the total flow of
money out of the country over some period of time
Balance of Payment

This is perhaps the most dramatic change in the world economy: free
trade means unrestricted movement of goods and services across
international borders. Even though complete free trade is not reality
Free Trade

The policy to create a partnership which is beneficial to both seller

countries and buyer countries
Fair Trade

Protectionism Government policies aimed at shielding a country’s industries form

 foreign competition

Import Duty (tariff) A tax levied on a particular foreign product entering country

Non-tariff Barrier A nontax measure imposed by a government to favor domestic over

foreign suppliers

A limit on the amount of a particular good that may be imported into a

country during a given period of time
Import Quota

Embargo A complete ban to trading with a particular nation or in a particular

product

Dumping Exportation (charging less than the actual cost) of large quantities of a
product at a price lower than that of the same product in the home
market

Organizations of nations that remove barriers to trade among their

members and that establish uniform barriers to trade with nonmember
Trading Blocs
nations (ASEAN, NAFTA, EU, Mercosur)

The treaty among the United States, Mexico, and Canada that
eliminated trade barriers and investment restrictions over a 15-year
North American Free Trade
period starting in 1994.
Agreement (NAFTA)

European Union (EU) The world’s largest common market, composed of 27 European
nations

An international organization of 153 nations dedicated to reducing or

eliminating tariffs and other barriers to world trade
GATT

World Trade Organization Powerful successor to GATT that incorporates trade in goods,
(WTO) services, and ideas

International Cooperative of 185 member countries, working together

to reduce poverty in the developing world.
World Bank (WB)

An international organization of 185 member nations that promote

international economic cooperation and stable growth
International Monetary
Fund (IMF)

Euro A unified currency used by most nations in the European Union

Exchange Rate Rate at which the money of one country is traded for the money of
another

The reduction of the value of a nation’s currency relative to the

currencies of other countries
Currency Devaluation

Foreign Exchange Control A restriction on the amount of a particular currency that can be
purchased or sold

Stereotyping Assigning a wide range of generalized attributes, which are often

superficial or even false, to an individual based on his or membership
in a particular culture of social group.

Ethnocentrism Judging all other groups according to your own group’s standards,
behaviors, and customs

Purchasing raw materials or products in other nations and bringing

them into one’s own country
Importing

Exporting Selling and shipping raw materials or products to other nations

Agreement to produce and market another company’s product in

exchange for a royalty or fee
Licensing

Long-term relationship in which two or more companies share ideas,

resources, and technologies in order to establish competitive
Strategic Alliance
advantages

When two or more companies join forces in sharing investment costs,

resources, risk, management and profits for the development,
Joint Venture
production, or selling products

Foreign Direct Investment Investment of money by foreign companies in domestic business

(FDI) enterprise

Multinational Corporations Companies with operations in more than one country

(MNCs)