Protectionism
The view that free trade is injurious and should be restricted
Tariff
A tax imposed on an imported good
Quota
A legal limit on the quantity of a good that may be imported
Question
Why would the government ever impose a quota rather than a tariff?
1. tariffs are revenues
2. quotas more likely encourage smuggling
3. quotas encourage corruption
1. Trade barriers are inefficient and reduce the size of the economic pie.
2. Because trade barriers benefit certain groups, and these groups may be well
organized, they may be successful in lobbying for trade barriers.
3. The gains from trade could be used to assist groups that have been hurt by trade
SURPLUSES AND DEFICITS
Trade Surpluses and Deficits
1. When a country exports more than it imports, it runs a trade surplus.
2. A trade deficit is the situation when a country imports more than it
exports.
Absolute Advantage versus Comparative Advantage
1. A country enjoys an absolute advantage over another country in the
production of a product when it uses fewer resources to produce that
product than the other country does.
2. A country enjoys a comparative advantage in the production of a good
when that good can be produced at a lower cost in terms of other goods.
Terms of Trade
1. The ratio at which a country can trade domestic products for imported
products is the terms of trade.
2. The terms of trade determine how the gains from trade are distributed
among trading partners.
Exchange Rates
1. An exchange rate is the ratio at which two currencies are traded, or the
price of one currency in terms of another.
2. For any pair of countries, there is a range of exchange rates that can
lead automatically to both countries realizing the gains from
specialization and comparative advantage.
The Sources of Comparative Advantage
Factor endowments refer to the quantity and quality of labor, land, and
natural resources of a country.
Factor endowments seem to explain a significant portion of actual world
trade patterns.
Other Explanations for Observed Trade Flows
1. Economies of scale may be available when producing for a world
market that would not be available when producing for a limited domestic
market.
2. Export subsidies are government payments made to domestic firms to
encourage exports.
3. Dumping refers to a firm or industry that sells products on the world
market at prices below the cost of production.
OBJECT OF INTERNATIONAL BUSINESS
Why studying International Business is Important
1. It is important because it allows the ability to act in business from our country to
other countries, using international treaties, exchange agreements and economic
agreements that facilitate trade and acquire a globalized vision of the international
economy and business Only from the commercial knowledge but also from the
logistic and customs knowledge, thus being able to understand the world market
and proceed to do business based on their own country.