Key Economic Concepts

Free Trade Agreements (FTAs)

• Agreements that increase trade barriers between economies.

• Agreements that eliminate all forms of taxation on goods.

• Agreements between economies where trade barriers are reduced or eliminated.

• Agreements that only apply to agricultural products.

International Trade

• The exchange of goods and services across national boundaries / between countries.

• The process of selling products only within a single country.

• The act of importing goods without exporting anything in return.

• The trade of services exclusively between businesses in the same country.

Opportunity Cost

• The value of the next best alternative forgone when a choice is made.

• The total cost of all alternatives considered.

• The cost of the most expensive option available.

• The benefit received from the chosen option.

Protectionism

• A policy of promoting free trade and open markets.

• A policy of sheltering the domestic industries from foreign competition through the imposition of trade barriers on the export or import of goods and services.

• A strategy to increase exports by reducing domestic production costs.

• A method of encouraging foreign investment by lowering tariffs.

Subsidies

• A direct tax imposed on imported goods to protect domestic industries.

• A financial aid provided by the government to support domestic producers.

• A quota system that limits the amount of foreign goods that can be imported.

• A tariff that increases the price of imported goods.

Trade Liberalisation

• A process of reducing or even eliminating trade barriers to reap benefits from free trade.

• A method of increasing tariffs to protect domestic industries.

• A strategy to promote local businesses by restricting foreign imports.

• An approach to enhance government control over international trade.

Comparative Advantage (CA)

• A country can produce a good at a higher opportunity cost than another country.

• A country has a comparative advantage if it can produce a good at a lower opportunity cost than another country.

• A country has a comparative advantage if it can produce all goods more efficiently than another country.

• A country has a comparative advantage if it can produce a good without forgoing any other goods.

Custom Unions

• A type of economic integration with no tariffs among member countries and no common external tariffs.

• A closer form of economic integration where there is free trade among member countries, and all members are required to operate common external tariffs on imports from non-member countries.

• An agreement that allows member countries to impose different tariffs on imports from non-member countries.

• A trade agreement that eliminates all forms of trade barriers among member countries.

Infant Industries

• Industries that are fully developed and competitive in the global market.

• Industries in the early phases of development that may face higher unit costs of production.

• Industries that have been established for many years and dominate the market.

• Industries that are only found in developing countries.

Terms of Trade (TOT)

• The rate at which one currency can be exchanged for another.

• The amount of imports that can be traded for 1 unit of export (or vice versa).

• The total value of goods and services produced in a country.

• The difference between a country's exports and imports.