Ch25 Free Trade VS Protectionism

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What is absolute advantage?

Back

A country has an absolute advantage in producing a good if it can produce more of that good than another country.

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What is comparative advantage?

Back

A country has a comparative advantage in producing a good when it has a lower opportunity cost compared to another country.

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What is free trade?

Back

Free trade is when goods and services are exchanged across national frontiers without any restrictions.

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What is the terms of trade?

Back

The terms of trade is a numerical measure of the relationship between export prices and import prices.

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How is the terms of trade measured?

Back

The terms of trade is measured by [Index of export prices ÷ Index of import prices] × 100.

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What is protectionism?

Back

Protectionism is where a government protects its domestic producers from foreign competition.

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What is a tariff?

Back

A tariff is a tax on imported goods. An example is the 10% US tax on aluminium imports.

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How does a tariff work?

Back

A tariff works through increasing the price of a good to consumers to encourage them to replace imported goods with domestic products.

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What is a quota?

Back

A quota is a limit on imported goods. An example is the US quotas on many different types of steel imports.

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What does a quota do?

Back

The quota restricts the supply of imports, and there is no additional revenue for the government.