Key Terms
Result
U.S. exports refrigerators, imports shoes.
Note
In this example, absolute advantage and comparative advantage align. That is not always the case.
PROTECTIONISM
Government policies that reduce or block imports to shield domestic producers and workers from foreign competition.
DUMPING
When foreign imports are sold at less than fair market value (below cost).
Process
1. U.S.
Founded
1947 Purpose: Forum for nations to negotiate reductions in tariffs and other trade barriers. Became: World Trade Organiz
Established
1995 (successor to GATT) Mission: Lower barriers to trade through negotiated agreements. Structure: Not a world governme
Estimated gains from completing the Doha Round
$160 billion to $385 billion per year added to the global economy. Against a $30+ trillion global economy, that is rough
FREE TRADE AGREEMENT
Members allow each other's imports without tariffs or quotas.
COMMON MARKET
Free trade between members plus a shared external trade policy toward non-members.
ECONOMIC UNION
Common market plus coordinated monetary and fiscal policies.
Absolute advantage
Producing a given good using fewer resources than another country.
Comparative advantage
Producing a good at a lower opportunity cost than another country.
Opportunity cost
What you give up to produce one more unit of a good.
Globalization
The increase in worldwide interconnectedness through exchange of ideas, cultures, goods, services, and investment.