Absolute Advantage EX: William has the resources necessary

to make 8 ceramic pots in a day, while Kate only has enough resources
to make 4 in a day.

The ability to produce more of a given product using a

given amount of resources
Comparative Advantage EX: William has the

comparative advantage in making ceramic pots versus tie-dye

shirts (3 shirts per day), while Kate has the comparative
advantage in making tie-dye shirts versus ceramic pots (10 shirts
per day).

The ability to produce a product most efficiently given all

the other products that could be produced
Law of Comparative Advantage EX: William is better off
specializing in ceramic pot making, while Kate is better off making tiedye shirts

The idea that a nation is better off when it produces goods

and services for which it has a comparative advantage
Export EX: Computers

A good that is sent to another country for sale

Import EX: Metals

A good that is brought in from another country for sale

Trade Barrier EX: Import quota
A means of preventing a foreign product or service from
freely entering a nation's territory
Import Quota EX: Chinas limit to exporting cotton to the U.S. is
about 621,000 kilograms

A limit on the amount of a good that can be imported

Voluntary Export Restraint (VER) EX:

The U.S.
voluntarily limits its exporting of cotton to Brazil to 500,000
kilograms

A self-imposed limitation on the number of products

shipped to a particular country
Customs Duty EX: Perfume bought in Paris
A tax on certain item purchased abroad
Tariff EX: Tax on foreign-made steel
A tax on imported goods
Trade War EX: Smoot-Hawley tariff

A cycle of increasing trade restrictions

Protectionism EX: Using trade barriers to protect the textile
industry in the U.S.

The use of trade barriers to protect a nation's industries

from foreign competition
Infant Industry EX: Alternative energy
A new industry
International Free Trade Agreement EX: Reciprocal
Trade Agreement of 1934

Agreement that results from cooperation between at least

two countries to reduce trade barriers and tariffs and to
trade with each other
World Trade Organization (WTO) EX: Enforced rules
between the US and EU during the beef war

A worldwide organization whose goal is freer global trade

and lower tariffs
European Union (EU) EX: EU citizens can cross borders
freely

A regional trade organization made up of European nations

Euro EX: 12 EU countries replaced their currencies with the
euro in 2002

A single currency that replaces individual currencies

among members of the European Union
Free-Trade Zone: U.S, Canada, and Mexico
A region where a group of countries agrees to reduce or
eliminate trade barriers
NAFTA EX: This agreement cannot be used to override
national and state environment, health, or safety laws

A trade agreement between Canada, the United States and

Mexico that encourages free trade between North
American countries
Exchange Rate EX: Rates go up and down daily, depending on
what the U.S. dollar is worth on that day

The value of a foreign nation's currency in terms of the

home nation's currency
Appreciation EX: An appreciated U.S. dollar means that

people in England will have to pay more pounds for goods from the
U.S

An increase in the value of a currency

Depreciation EX: A depreciated U.S. dollar means that U.S.
citizens will get fewer pounds for each dollar

A decrease in the value of a currency

Foreign Exchange Market EX: These are located in
financial centers worldwide, such as New York and London

The banks and other financial institutions that facilitate

the buying and selling of foreign currencies
Fixed Exchange-Rate System EX: The fixed exchange

rate is kept within plus or minus two percent, anything other than
that equals government intervention

A currency system in which governments try to keep the

values of their currencies constant against one another
Flexible Exchange-Rate System EX: Exchange rates
need not fall into any prespecified range

A currency system that allows the exchange rate to be

determined by supply and demand
Trade Surplus EX: A country with a trade surplus has a positive
trade balance

The result of a nation exporting more than it imports

Trade Deficit EX: A country with a trade deficit as a
negative trade balance

The result of a nation importing more than it exports

Balance of Trade EX: Large difference between a countrys
exports and imports equals a trade imbalance

The relationship between a nation's imports and its exports

Development EX: Countries, such as Nepal, need to undergo

more development as a nation than other countries, such as Canada

The process by which a nation improves the economic,

political, and social well being of its people
Developed Nation EX: Wealthy nations, such as the U.S. and
New Zealand

Nation with a higher average level of material well being

Less Developed Country EX: Poor nations, such as
Bangladesh and Albania

Nation with a low level of material well being

Per Capita GDP EX: Per capita GDP helps compare living
standards in countries using population size of the respective countries

A nation's GDP divided by its total population

Industrialization EX: Low levels of energy equal low levels
of industrial activity

The extensive organization of an economy for the purpose

of manufacture
Subsistence Agriculture EX: Since many people must
engage in subsistence agriculture to support their families, then
there is little opportunity for specialization in an economy

Level of farming in which a person raises only enough food

to feed his or her family
Literacy Rate EX: The higher the literacy rate in a country, then
the higher the level of development that it undergoes.

The proportion of the population over age 15 that can read

and write
Life Expectancy EX: Life expectancy indicates how well an
economic system supports life in its population

The average expected life span of an individual

Infant Mortality Rate EX: The U.Ss infant mortality rate

is 6.4

The total number of deaths in a year among infants under

one year old for every 1,000 live births in a society.
Infrastructure EX: Roads, communication systems, schools,
etc.

The services and facilities necessary for an economy to

function
Newly Industrialized Country (NIC) EX: Taiwan and
South Korea

Less developed country that has shown significant

improvement in the measures of development
Population Growth Rate EX: Number of births, deaths,
and people immigrating or emigrating

The increase in a country's population in a given year,

expressed as a percentage of the population figure at the
start of the year
Natural Rate of Population Increase EX: Less

developed countries are having longer life expectances, but there

is also an increase in the birth rate, which leads to rapid
population growth

The difference between the birth rate and the death rate
Arable Land EX: 10% of the Earths land is arable
Suitable for producing crops
Malnutrition EX: A malnourished population will give birth
to a net generation of malnourished children with low birth weight
and birth defects

Inadequate nutrition
International Financing EX: A method for financing a

countrys economic development without looking for investments

from foreign countries

Financing derived from the savings of a country's citizens

Foreign Investment EX: A method for financing a
countrys economic development with the help from foreign
investment funds

Investment originating from other countries

Foreign Direct Investment (FDI) EX: A MNC is
established in a LDC

The establishment of an enterprise by a foreigner

Foreign Portfolio Investment EX: An investor buys

shares in a mutual fund, which indirectly leads to an increase in

production for a foreign company

The entry of funds into a country when foreigners make

purchases in the country's stock and bond markets
World Bank EX: Offers advice and gives out loans to many LCDs

The largest provider of development assistance

United Nations Development Programs (UNDP) EX:
90% of its resources are devoted to 66 low-income nations

United Nations program dedicated to elimination of

poverty through development
International Monetary Fund (IMF) EX: Assists
LCDs with in financing their international transactions

Organization formed to stabilize international exchange

rates and facilitate development
Debt Rescheduling EX: A debtor country must adapt an
IMF stabilization program if they as to reschedule repaying

Lengthening the time of debt repayment and forgiving, or

dismissing, part of the loan

Stabilization Program EX: A LDCs increase in exporting

can help it earn money to pay of its debts

An agreement between a debtor nation and the IMF in

which the nation agrees to revise its economic policy
Privatization EX: Selling the business or selling shares of the
business are two ways a government can privatize

The sale or transfer of state-owned businesses to

individuals
Glasnost EX: Greater freedom was allowed for media and
religious groups in the Soviet Union in the 1980s

A policy of political "openness" introduced into the Soviet

Union in the late 1980s
Perestroika EX: Factory mangers, for instance, were allowed to
decide their own production rather than central planners

Soviet leader Gorbachev's plan for economic restructuring

Light Industry EX: Bikes
The production of small consumer goods
Special Economic Zones EX: Taiwan and Hong Kong

Designated regions of China where foreign investment is

encouraged, businesses can make most of their own
investment and production decisions, and foreign
companies are allowed to operate
Chinese Transition to Free Market EX: Four
Modernizations

Deng Xiaoping introduced the reform, Four

Modernizations
Soviet Union's Collapse EX: Glasnost and perestroika
People called for a complete end to communism while
enjoying the freedoms of glasnost and perestroika