Comparative advantage, tariffs, WTO, development indicators, microfinance, and trade agreements.
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- What is comparative advantage?
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The ability of a country to produce a good at a lower opportunity cost than another country.- How does comparative advantage differ from absolute advantage?
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Comparative advantage is based on opportunity costs; absolute advantage is based on total productivity. A country can benefit from trade even with absolute disadvantage in everything.- What determines comparative advantage in the Ricardian model?
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Differences in labor productivity between countries.- When countries specialize by comparative advantage, what happens to total world output?
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Total world output increases.- Should a country trade if it is less productive at all tasks than its partner?
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Yes, if it has comparative advantage in at least one good, it still gains from trade.- What is an ad valorem tariff?
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A tariff charged as a percentage of the imported good's value.- What is a specific tariff?
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A fixed amount of tax per unit of the imported good, regardless of its price.- What are non-tariff barriers to trade?
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Trade restrictions other than tariffs, such as quotas, licenses, technical standards, or local-content rules.- What is an infant industry argument for tariffs?
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Young industries need temporary protection from foreign competition until they become competitive.- What is dumping in trade?
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Selling a product in a foreign market below its production cost or below the home market price.- How does an import quota affect domestic prices?
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It typically raises the domestic price of the protected good by restricting supply.- What does WTO stand for?
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World Trade Organization.- What is the Most Favored Nation principle in the WTO?
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A country must grant the same trade terms to all WTO members that it grants to any single other member.- What core trade restrictions does the WTO generally prohibit?
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Quantitative restrictions and quotas on imports; tariffs are allowed if they remain within negotiated binding limits.- What does GATT stand for?
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General Agreement on Tariffs and Trade, the predecessor organization to the WTO founded in 1947.
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