Definitions

Meaning independence or self-sufficiency. A country is in a state of autarky if it is not trading with any other countries.

For a trading country, its productive strength in trade. A country has comparative advantage in its export good. Intuitively, the exporting country can produce the export good relatively cheaper than the importing country. Comparative advantage derives from the country’s own factor productivity differences, which come either from different factor endowments or from different technologies.

Benefits deriving from the ability to consume bundles of goods that lie above a country’s production possibilities frontier. They are usually decomposed into two sources (with parallel interpretations in demand theory): the gains from international exchange (income effect) and the gains from international specialization (substitution effect).

In microeconomic theory, general equilibrium is distinguished from partial equilibrium, where only first-order responses to a variable or set of influences make up the analysis holding constant any economic responses outside of that narrower part of the economy (for example, the familiar demand and supply “scissors” diagram in price, quantity space might consider the effect of a price change holding income constant, although price changes affect incomes in the longer term).

Relates the motive for trading to differences in trading countries’ relative factor abundance. The theorem states that, in a two-factor, two-good, two-country world with identical constant returns to scale technology in both countries, and no rigidities preventing redeployment of factors across production sectors, then if one good uses more of one of the factors at any scale of production, the country which is relatively abundant in one factor will export the good that uses that factor relatively intensively. See Heckscher, Ohlin, Flam and Flanders (1991).

A hypothetical person that embodies the preferences and demand functions of a society. See Gorman (1953).

The preference level set for the members of a society, as distinct from the more usual individual indifference curve drawn for just one person. See Samuelson (1956).

Taxes by the government when a good or service is imported into the country, and they come in two types. A specific tariff is an amount of money collected per unit imported of the product for example $100 per computer. An ad valorem tariff is an amount of money collected as a percentage of the price of the imported product, for example 5% of the price of a computer.

Another name for the relative price ratio or the slope of the national income line in two-dimensions. This terminology is used in trade theory because it captures the value of an exchange of two goods: visually, how much of the “Y axis” good has to be given up to trade for one unit of the “X axis” good (or rise over run, in quantities).