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Globalization & International Trade

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Goods bought from other countries for domestic use
Goods sold to other countries
Absolute Advantage
Ability of one country to produce more output per unit of input than any other country
The concept that a nation should produce and export a limited assortment of goods for which it is particularly suited in order to use its resources most efficiently
Comparative Advantage
Ability of a country to produce a product at a lower opportunity cost than another country
exchange rate
The price of one currency to another.
Foreign Exchange Markets
Markets dealing in buying and selling foreign currency for businesses that want to import goods from other countries
Fixed Rate of Exchange
System under which a national government sets the value of its currency in relation to other countries
International Monetary Fund (IMF)
A multinational organization established in 1944 by the Bretton Woods agreement to administer a system of fixed exchange rates and to serve as a lender of last resort to countries undergoing balance-of-payments problems.
Lowering a currency's value in relation to other currencies by government order
Flexible Exchange Rate
Arrangement in which the forces of supply and demand are allowed to set the price of various currencies
A drop in the price of a currency through market forces (the action of supply and demand)
Balance Of Trade
The balance of trade is the difference between the value of a nations exports (good sold) and the value of its imports (goods purchased).
Trade Deficit
A negative balance of trade (a country imports more than it exports)
trade surplus
a favorable balance of trade; occurs when the value of a country's exports exceeds that of its imports
A government tax on imports or exports
Revenue Tariff
A tax on imports used primarily to raise government revenue without restricting imports
Protective tariff
A tax on imports used to raise the cost of imported goods and thereby protect domestic producers
import quota
a limit on the number of products in certain categories that a nation can import
a complete ban on the import or export of a certain product, or the stopping of all trade with a particular country
People who argue for trade restrictions to protect domestic industries
World Trade Organization (WTO)
The world's largest trade agreement, currently more than 150 member nations
North American Free Trade Agreement (NAFTA)
A trade agreement designed to reduce and gradually eliminate trade barriers between Mexico, Canada and the United States
Central American Free Trade Agreement (CAFTA)
A trade agreement designed to reduce tariff barriers between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States
European Union (EU)
An organization of European nations whose goal is to encourage economic integration as a single market