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Study Guide Chapter 6

Study Guide Chapter 6 - Chapter 6 Review Definitions...

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Chapter 6 Review Definitions Concepts Examples and Questions of the Definitions Absolute Advantage: the ability of a country to produce more of a particular good or service than other countries using the same amount of effort and resources. Adam Smith made famous the example of Portugal specializing in wine while England pursued its absolute advantage in cloth. Promises of mutual restraint in protectionism the creation of new forms of protectionism, r dumping cas Comparitive Advantage: the ability of a country to produce a particular good or service more efficiently than other goods or services. Countries can maximize their wealth by specializing in the activity that they do best from the range of activities available. David Ricardo showed that this held true even if other countries performed the chosen task more efficiently. governent policies that keep keep out imports force the country to produce goods that are not to irs comparivie advantage. Bilateral, regional or global trade treaties proscribe certain state actions in order to liberalize trade. Countries that ratify such accords agree to forgo certain forms or levels of protectionism. Dead weight loss: the difference between what protectionists earn from trade restrictions and the costs of the restrictions to consumers. The latter outweigh the former as the trade restrictions lead to inefficient production methods and reduced consumer demand. The liberal theory of comparative advantage proves a compelling rationale for trade liberalization. Specialization promotes economic efficiency through greater access to resources and by achieving economies of scale. Division of Labor: when society assigns certain tasks to its most appropriately gifted members, who then specialize in that activity. Dumping: selling an export for less than its cost of production in order to capture market share. US say that Canada's forestry trade policies are unfair and Canadiasn reject his. Threatening relatiosns due to conflicting interpretations of trade rules interest groups seeking protection do so at the expense of the general welfare in the form of redistribution and efficiency loss.
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