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a case of national self-sufficiency or absence of trade
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basis for trade why nations export and import certain products
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measures the relationship between the prices a nation gets for its exports and the prices it pays for its imports
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community indifference curve start learning
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the indifference curve that represents the tastes and preferences of all of the households of a nation
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a situation in which a country produces only one good
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constant opportunity costs a constant rate of sacrifice of one good for another as a nation slides along its production possibilities schedule start learning
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a constant rate of sacrifice of one good for another as a nation slides along its production possibilities schedule
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posttrade consumption points outside a nation’s production possibilities schedule
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dynamic gains from international trade start learning
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the effect of trade on the country’s growth rate and thus on the volume of additional resources made available to, or utilized by, the trading country
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cost conditions that make lengthy industry exit a rational response by companies
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a system of open markets between countries in which nations concentrate their production on goods they can make most cheaply, with all the consequent benefits of the division of labor
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gains from international trade start learning
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gains trading partners simultaneously enjoy due to specialization and the division of labor
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importance of being unimportant start learning
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when one trading nation is significantly larger than the other, the larger nation attains fewer gains from trade while the smaller nation attains most of the gains from trade
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increasing opportunity costs start learning
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when each additional unit of one good produced requires the sacrifice of increasing amounts of the other good
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a curve depicting the various combinations of two commodities that are equally preferred in the eyes of the consumer
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the cost or price of a good depends exclusively on the amount of labor required to produce it
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marginal rate of transformation (MRT) start learning
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the slope of the production possibilities schedule that shows the amount of one product a nation must sacrifice to get one additional unit of the other product
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an advocate or practitioner of mercantilism; a national economic system in which a nation could regulate its domestic and international affairs so as to promote its own interests through a strong foreign-trade sector
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the terms-of-trade limit at which a country will cease to export a good
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outer limits for the equilibrium terms of trade start learning
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defined by the domestic cost ratios of trading nations
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partial specialization when a country specializes only partially in the production of the good in which it has a comparative advantage
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price-specie-flow doctrine start learning
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David Hume’s theory that a favorable trade balance was possible only in the short run, and that over time, it would automatically be eliminated via changes in product prices
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principle of absolute advantage start learning
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in a two-nation, two-product world, international specialization and trade will be beneficial when one nation has an absolute cost advantage in one good and the other nation has an absolute cost advantage in the other good
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principle of comparative advantage start learning
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ability to produce a good or service at a lower opportunity cost than others can produce it
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increases in production resulting from specialization in the product of comparative advantage
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production possibilities schedule start learning
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a schedule that shows various alternative combinations of two goods that a nation can produce when all of its factor inputs are used in their most efficient manner
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region of mutually beneficial trade start learning
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the area that is bounded by the cost ratios of the two trading countries
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the relative prices at which two products are traded in the marketplace
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theory of reciprocical demand start learning
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relative demand conditions determine what the actual terms of trade will be within the outer limits of the terms of trade
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an area in a production possibilities diagram showing a country’s exports, imports, and equilibrium terms of trade
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trading possibilities line start learning
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a line in a production possibilities diagram representing the equilibrium terms-of-trade ratio
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