International Trade Flashcards

Questions and Answers

Define international trade.

International trade is the exchange of goods and services between countries, creating a world economy with its own supply and demand.

Define autarky.

An autarky is an economy that does not trade and is economically independent or self-sufficient.

What are the gains from international trade? (Select all that apply)

Economic isolation

Greater choice (correct)

Differences in resources (correct)

Lower prices (correct)

How does international trade lead to lower prices?

International trade allows consumers to buy goods and services at lower prices than domestic ones. Signup and view all the answers

How does international trade lead to greater choice?

International trade provides consumers with a wider variety of products from different countries. Signup and view all the answers

How does international trade lead to differences in resources?

Countries possess different resources and may need to import raw materials or goods they lack. Signup and view all the answers

How does international trade lead to economies of scale?

Increased demand for goods from national and international markets allows firms to benefit from economies of scale. Signup and view all the answers

How does international trade lead to increased competition?

It allows foreign firms to compete in local markets, leading to efficiency, lower prices, and improved quality. Signup and view all the answers

How does international trade lead to more efficient allocation of resources?

Trade allows countries to produce goods where they have a comparative advantage, utilizing resources efficiently. Signup and view all the answers

How is international trade a source of foreign exchange?

It enables countries to obtain foreign currencies necessary for purchasing essential products from abroad. Signup and view all the answers

Define absolute advantage.

A country has an absolute advantage in producing a good if it can produce it using fewer resources than another country. Signup and view all the answers

Define reciprocal absolute advantage.

A reciprocal absolute advantage is when each country has an absolute advantage in producing one specific product. Signup and view all the answers

Who came up with the comparative advantage theory and when?

David Ricardo proved the theory of comparative advantage in the early 19th century. Signup and view all the answers

Define comparative advantage.

A country has a comparative advantage if it can produce a good at a lower opportunity cost. Signup and view all the answers

What happens if there is no comparative advantage?

If there is no comparative advantage, then there are no benefits to trading. Signup and view all the answers

What gives a country a comparative advantage?

Comparative advantage is largely determined by a country's endowments, such as resources and labor availability. Signup and view all the answers

Study Notes

International Trade

International trade involves the exchange of goods and services across countries, creating a global economy defined by its supply and demand dynamics.

Autarky

An autarky refers to an economy that operates independently without engaging in international trade, achieving self-sufficiency.

Gains from International Trade

Lower prices enable consumers and producers to purchase goods and raw materials more affordably.
Greater choice provides consumers with a wider variety of products, including those from diverse countries.
Differences in resources necessitate imports for countries lacking certain raw materials essential for production.
Economies of scale arise as firms increase production to meet both national and international demand, reducing per-unit costs.
Increased competition from foreign firms enhances local market efficiency, quality, and variety of goods and services.
More efficient allocation of resources occurs when countries specialize in producing goods they can produce at lower costs, thus optimizing global resource use.
International trade acts as a source of foreign exchange, allowing countries to acquire foreign currencies vital for purchasing essential imports, particularly for developing nations.

Absolute and Comparative Advantage

Absolute advantage exists when a country can produce a good more efficiently than another, using fewer resources.
Reciprocal absolute advantage occurs when two countries each hold an absolute advantage in producing different goods.
David Ricardo established the theory of comparative advantage in the early 19th century, demonstrating that trade benefits both countries even if one country has absolute advantages in all goods.
Comparative advantage is defined by a country's ability to produce a good at a lower opportunity cost compared to others.

Implications of Comparative Advantage

Without comparative advantage, countries gain no benefits from trading, emphasizing the importance of this concept in international economics.
A country’s comparative advantage is largely influenced by its economic endowments, such as resources and labor, which can lower production costs for certain goods. For instance, ample arable land boosts agricultural production advantages.

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Description

Test your knowledge on international trade with these flashcards. Learn definitions, concepts like autarky, and the benefits of trading between countries. Ideal for students studying economics or global trade.