international trade: trade between people or firms of different countries

Growth of trade 1. transport and communication costs have decreased

                            2. gov. restrictions have been lifted

Benefits               1. reduced costs-- production carried out on a larger scale

                            2. Specilization has been made possible by the presence of larger markets

commerce clause: clause in the constitution that prevents trade restrictions between the states

mercantilism: prevailing economic thinking in the 17th century that held that countries should grow wealthy by maximizing exports and minimizing imports in order to amass gold and silver

:their goal was to maximize net exports

Adam Smith: argued against mercantilism

1 mutual gains from open trade

2 increased competition

3 division of labor

4 better use of skills and resources---basically comparative advantage

export: the sale of goods and services abroad

import: the purchase of goods and services from abroad

net exports: the value of goods and services sold abroad minus the value of goods and services imported

tarrifs: taxes on imports

free trade: a complete lack of restrictions on free trade

absolute advantage: a situation in which a person or country is more efficient at producing a good or service in comparison with another person or country.

comparative advantage: a situation in which one person or country can produce one good more efficiently than another good in comparison with another person or country: they can produce with a lower opportunity cost.

Relative efficency: similar to comparative advantage and gets same end results but compares differently

opportunity cost: the value of the next best forgone alternative that was not chosen because something else was chosen

terms of trade: a quantity of imported goods that a country can obtain for a unit of exported goods

gains from trade: improvements in income, production, or satisfaction owning to the exchange of goods.

dynamic comparative advantage: changes In corporate advantage over time from investment in physical and human capital and technology.

capital abundant: a higher level of capital per worker in a country relative to another

labor abundant: a lower level of capital per worker relative to another country

capital intensive: production that uses a relatively high level of capital per worker

labor intensive: production that uses a relatively low level of capital per worker

Leontief paradox: the inconsistency that was found between the data on US trade and the Hescher-Ohlin model. p510

factor price equalization: the equalization of the price of labor and the price of capital across countries when they are engaging in free trade

intra industry trade: trade between countries in goods from the same industry

Inter industry trade: trade between countries in goods from different industries

new trade theory: models of international trade in which cost per unit declines as the international market grows

phase out: the gradual reduction or removal of a government regulation or trade barrier

trade adjustment assistance: transfer payments made to workers who will be hurt in the short run by the move to free trade