Glossary

the ability of one supplier to producer a good or service using fewer resources than other suppliers

a tariff expressed as a fixed percentage of the estimated value of an imported product

an 18th-century Scottish philosopher and author of The Wealth of Nations; considered the "father of economics"

a duty that is charged on products that an importing country believes are being dumped in its domestic market

the process of buying a good in one market and selling it in another market (e.g, across borders) to take advantage of price differences

a market process in which a good or service is sold to the highest bidder

when growth results in an increase in output of all products of the same proportion, assuming that relative prices remain constant

when growth results in disproportionate increases in the output of different products in the economy, assuming that relative prices remain constant

the ability of one supplier to produce a good or service at lower opportunity cost than other suppliers

a tariff that is a combination of a specific tariff and an ad valorem tariff

the diversification of a business enterprise into unrelated markets

the extra benefit consumers receive from buying a good or service, measured by what the individuals are willing to pay minus the amount that they actually pay

the loss of economic well-being that occurs due the increase in price and the resulting fall in consumption due to import protection (e.g., tariff)

a duty that an importing country charges on imported products with the aim of offseting export (or other) subsidies provided by foreign governments

the convergence of cultures, where people across different countries become increasingly attached to the same cultural products, usually originating in dominant countries

a British economist and member of Parliament in the late 18th and early 19th centuries

the loss in social surplus that occurs when a market produces an inefficient quantity

the relationship between price and the quantity demanded of a certain good or service, assuming other influences on demand remain constant

a good manufactured and sold in a particular country must have a stated minimum proportion of its value produced domestically

selling internationally traded goods below their cost of production

the difference between the actual price charged by the exporting firm and the fair-market or normal value

an industry in which production, employment, and market share are persistently declining due to competition from imports or technological change

an increase in the productive cabilities of an economy

a simplified representation of the economic world (i.e., of economic reality)

the reduction in the long-run average cost of production that occurs as total output increases

measures the percentage increase in domestic production activities (i.e., value-added) that import tariffs make possible, compared with free trade

measures responsiveness of one economic variable to changes in another economic variable

the price of one currency in terms of another currency

a per unit payment to domestic producers to encourage export sales

beneficial spillovers to a third party of parties, who did not purchase the good or service that provided the externalities

costs to people who were not party to a private market transaction

the situation in which the long-run average cost of the firms decline as the output of the industry increases

the tendency for free trade to cause the prices of individual facors of production to equalize across countries

price paid by consumers in the home market or by comparable buyers in other foreign markets

the situation in which private incentives are in full alignment with the benefits and costs to society as a whole

purchasing more than ten percent of a firm or starting a new enterprise in another country

forum in which nations could come together to negotiate reductions in tariffs and other barriers to trade; the precursor to the World Trade Organization

the trend in which buying and selling in markets have increasingly crossed national borders, especially by large companies engaging in business in multiple countries

measure of the size of total production of goods and services in an economy in a single year

states that the basis for international trade are differences in relative endowments of factors among countries

the headquarters of the parent company of a multinational enterprise

when a parent company manufacturing a product in its home country establishes a subsidiary to produce the same product in a host country

country in which foreign subsidiaries of the parent company are located

a theory about how key variables relate to each other

this reflects the possibility that growth that expands a country's willingness-to-trade can lead to decline in the country's terms of trade large enough to make the country worse off economically

this describes a market where the assumptions of perfect competition — many buyers and sellers, identical products, readily available information, and ease of entry and exit for firms — do not hold; in imperfect competition, firms set prices, may sell differentiated products, and barriers to entry and exit may exist

a government permit to import foreign goods within specified legal limits (e.g., import quota)

numerical limits on the quantity of products that a country can import

when the demand for a good changes with an increase or decrease in consumers' income

the tendency for the cost of a resource used in production to rise with increased output

a graph that shows combinations of different goods among which a consumer is indifferent, i.e., that gives the same level of satisfaction to a consumer

a new industry to which government provides temporary protection until it can produce at costs low enough to compete internationally

a general and ongoing rise in price levels in an economy

annual rate of increase of the consumer price index (CPI)

trade between countries whereby a country exports one type of products and imports a very different type of product

the “price” of borrowing in the financial market; a rate of return on an investment

when the long-run average cost of the firm declines as the output of the firm increases

advantages of using a resource within the business instead of contracting with other firms to buy, lease, or license the resource

the movement of people from one country to another country where they plan to live for a relatively long period of time

an international organization that promotes global economic growth, financial stability, international trade, and poverty reduction

international trade of goods within the same industry

an importing country that has a sufficiently large share of the world market to influence the world price of the product by using tariffs to alter the quantity of imports

the situation where, contrary to expectations, exports turn out to be less capital-intensive than imports

the various advantages or disadvantages of a firm setting up operations in country as against another

the increase in the total cost that results from a unit increase in production

interaction between potential buyers and sellers; a combination of demand and supply

the movement of labour from one region or country to another region or country where they intend to live for substantial period of time

many firms competing to sell similar but differentiated products

a firm that owns and operates businesses in more than one country

the collective interests that are considered important in keeping a nation and its citizens safe

import quota that maximizes the positive difference between the gain due to the improvement in the terms of trade and the loss due to the reduction in imports

a tariff rate that maximizes the difference between the improvement in the terms of trade and the economic loss due to the decrease in import volume due to the imposition of an import tariff by a large importing country

the tariff rate that is published in the tariff schedule of a country

ways a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

when a few large firms have all or most of the sales in an industry

the highest value that must be given up when making a particular choice

controls and operates another (usually smaller) company or subsidiary (in the context of a multinational enterprise)

a market in which there are many buyers and sellers; firms sell identical products; information is readily available; and there are no barriers to the entry or exit of firms

international price discrimination whereby a producer sells a product at a lower price in foreign markets than in its domestic market

the situation whereby a producer temporarily reduces the price at which it sells its product abroad to eliminate foreign competitors

selling the same product at different prices in different markets

the extra benefit producers receive from selling a good or service, measured by the difference between the price they actually receive and the lowest price they are willing to accept

any action that firms do to make consumers think their products are different from their competitors

a predictable cycle in which many manufactured products are initially exported from the country where they were developed and are eventually imported by the country of its innovation

measures the loss to the domestic economy, and reduction of national well-being, that arises from the subsitution of higher-cost domestic production for more efficient foreign production

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

an import tariff imposed with the aim of protecting domestic producers from import competition

the difference between the domestic price of the imported product and the world price multiplied by the quantity of imports under the quota

the country to which people move and plan to reside for a relatively long period of time (in the context of a multinational enterprise)

procedures to allocate an item that uses up real resources, including first-come, first-served, proof of merit, or negotiation

a tariff imposed, either on exports or imports, with the aim of generating tax revenue

growth in a country's endowment of one factor of production, assuming the other factor and product prices remain unchanged, leads to an increase in the production of the good that uses the growing factor intensively and a decline in production of the other good

situation in which gaps exist between incentives that influence private decision-making and the benefits and costs to society

the country that people leave in order to reside in another country (in the context of a multinational enterprise)

a country that imports such a small share of a product that it has no influence on the world price

considers the income distribution effects of trade when factors of production are not mobile across industries in the short run

a tariff expressed in terms of a fixed amount of money per unit of the imported product

when a producer gets rid of excess inventories by selling in foreign markets at lower prices than at home

any event that changes relative product prices in a country has two effects: it raises the return of the factor used intensively in the industry where price is rising and lowers the return of the factor used intensively in the industry where price is falling

company located in a foreign country that is owned by the parent company of a multinational enterprise

when changes in relative prices lead consumers to substitute a cheaper product for a more expensive one

the relationship between price and the quantity supplied of a certain good or service

a tax that governments place on imported goods

combines an import tariff and a quota, allowing a specified quantity of imports at a low tariff rate (i.e., the within-quota rate) and any imports over that amount to be imported at a higher tariff rate (i.e., the over-quota tariff rate)

holds that import tariffs are a very important source of revenue for governments in developing countries

revenue that is generated by a trade policy other than a tariff that's equal to the revenue generated by a tariff

the tariff revenue that the importing country gets from foreign suppliers of the imported product in the form of lower supply prices

provided by goverment to domestic industries, workers, and communities disrupted by import competition

gap between the value of exports and the value of imports

the number of people in the labour force without jobs

a measure (e.g., height, quantity) that can take on different values in different situations or at different times

when the parent company establishes foreign subsidiaries to produce inputs into the production of the final product

a quantitative limit on exports of a product that's typically imposed at the urging of an importing country's government

an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects

an international organization that seeks to negotiate reductions in barriers to trade and to adjudicate complaints about violations of international trade policy; successor to the General Agreement on Tariffs and Trade (GATT)