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International Trade

International Trade

international-trade Terms

Absolute Advantage

A country’s ability to produce a certain good more efficiently and/or at less cost than another country.

Balance of Payments

A measure of the amount of money coming and going out of a country. Includes the values of imports and exports, but also money flowing in and out for services, investment, and tourism.

Balance of Trade

A measure of nation’s exports and imports. When exports exceed imports there is a positive or favorable balance of trade.

Bretton Woods

An international conference held in New Hampshire in 1944 that laid the groundwork for post-World War II international trade. Allied leaders agreed, among other things, to set a schedule of fixed exchange rates pegging foreign currency to the American dollar.

Comparative Advantage

A country’s ability to produce a particular good with a lower opportunity cost than another country.

Embargo

An order of government prohibiting commercial trade and other commerce with another country. In many cases, such orders are enacted by one nation as a form of coercion or punishment of another for disagreements over international policies or belligerent acts.

Government measure prohibiting trade, or certain aspects of trade, with a foreign country.

Fixed Rate of Exchange

International currency exchange rates set and maintained by governments. Under the Bretton Woods agreements, Allied leaders adopted a schedule of fixed exchange rates pegging foreign currency to the American dollar.

Flexible Rate of Exchange

International currency exchange rates determined by laws of supply and demand. Since the collapse of the Bretton Woods agreements in the early 1970s, international currencies have “floated” in response to forces of supply and demand.

Free trade

International trade unrestricted by protectionist measure such as tariffs or quotas.

International Reserve Currency

A currency generally accepted by nations as means of settling foreign debts and purchasing foreign goods. Under the Bretton Woods agreements, the United States dollar was identified as the international reserve currency.

Opportunity cost

What you sacrifice in making an economic choice. In terms of foreign trade, it refers to the commercial profits accruing to product X that are sacrificed in deciding to produce and export product Y instead of X.

Protectionism

Government policies aimed at protecting domestic industries and workers from foreign competition through the imposition of tariffs, quotas, and embargos.

Quota

A government imposed limit on the quantity of a particular good that may be imported into a country. One of the common tools of protectionism.

Specialization

In terms of foreign trade, a country’s decision to specialize in the production of a certain good or list of goods because of the advantages it possesses in their production.

Strong Dollar

An American dollar that is comparatively expensive for foreigners. A strong dollar hurts American exports, because it makes U.S.-produced goods more expensive in overseas markets, but it increases Americans' ability to purchase foreign goods for low prices.

Tariff

A tax on an imported good that provides the federal government with revenue and protects domestic producers of that good from competition.

A tax on an imported good. Tariffs are a source of government revenue but often they are imposed to increase the price of the imported good and protect domestic goods from foreign competition. One of the common tools of protectionism.

Trade Deficit

Imports exceed exports, an unfavorable balance of trade.

Trade Surplus

Exports exceed imports, a favorable balance of trade.

Weak Dollar

An American dollar that is comparatively inexpensive for foreigners. A weak dollar tends to make American exports more competitive, because they cost less to overseas buyers, but it also reduces Americans' ability to buy cheap foreign goods.

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