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Comparative advantage
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The ability of one person or nation to produce a good at an opportunity cost that is lower than the opportunity cost of another person or nation.
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terms list
Comparative advantage
The ability of one person or nation to produce a good at an opportunity cost that is lower than the opportunity cost of another person or nation.
Absolute advantage
The ability of one person or nation to produce a particular good at a lower absolute cost than that of another person or nation.
Circular flow diagram
A diagram showing the flow of money and goods between markets.
Export
A good produced in the "home" country (for example, the United States) and sold in another country.
Import
A good produced in a foreign country and purchased by residents of the "home" country (for example, the United States.)
Protectionist policies
Rules that restrict the free flow of goods between nations, including tariffs (taxes on imports), quotas (limits on total imports), voluntary export restraints (agreements between governments to limit imports), and nontariff trade barriers (subtle practices that hinder trade).
General Agreement on Tariffs and Trade [GATT]
An international agreement that has lowered trade barriers between the United States and other nations.
World Trade Organization [WTO]
An organization that oversees GATT and other international trade agreements.
North American Free Trade Agreement [NAFTA]
An international agreement that lowers barriers to trade between the United States, Mexico, and Canada (signed in 1994).
European Union [EU]
An organization of European nations that has reduced trade barriers within Europe.
Asian Pacific Economic Cooperation [APEC]
An organization of 18 Asian nations that attempts to reduce trade barriers between their nations.
Foreign exchange market
A market in which people exchange one currency for another.
Exchange rate
The price at which currencies trade for one another.
Financial liberalization
The opening of financial markets to participants from foreign countries.
International Monetary Fund
An organization that works closly with national governments to promote financial policies that facilitate world trade.
Benefit-tax approach
The idea that a person's tax liability should depend on his or her benefits from government programs.
Horizontally equity
The idea that people in similar economics circumstances should pay similar amounts in taxes.
Vertical equity
The idea that people with more income or wealth should pay higher taxes.
Mixed economy
A market based economic system in which government plays an important role, including the regulation of markets, where most economic decisions are made.
Centrally planned economy
An economy in which a government bureaucracy decides how much of each good to produce, how to produce the goods, and how to allocate the products among consumers.
Transition
The process of shifting from a centrally planned economy toward a mixed economic system, with markets playing a greater role in the economy.
Privatizing
The process of selling state firms to individuals.
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