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Glossary of INR Test 4

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Global patterns of Trade
There are about $10 trillion across the borders each year.
=>10x the amout used for military spending.
Types of Trading Policies
Downplayed role of realism
=>Mercantilism
Liberalism
Define Mercantilism
Desire to trade surplusses to stock pile money and then buy military armament.
=>Relative gains are more important.
THINK: $10
$7 to $3 (gap is bigger)
Define Liberalism
Free trade and free markets maximize the creation of wealth for all.
=>Absolute gains are important
THINK: $13
$8 to $5 (more everything)
Why Trade?
Comparative Advantage
1) States differ in their abilities to produce goods
2) In order to maximize over all wealth, states should specialize in goods for which they have comperative advantage, and then trade for other goods
Potential drawbacks to trade
1) Long term benefits may mean short term costs. Such as unemployment (disruption to the economy)
2) Some industries may lose more than others
Define Balance of trade
Value of states imports relative to exports
Define the two types of "BOT"
1)Surplus: value of exports> value of imports
=>Positive BOT
2)Deficit: Value of imports> value of exports
=>negative BOT
Why can trade deficit be a problem?
If you are paying for more imports than your exporting your buying them with your country's wealth. Leads to other countries owning your property, resources, etc.
Trade Strategies
1)Autarky: Policy by which states avoid trading all together, and produces everythig for itself.
ex: 50's or 60's China
2) Protectionism: Trade policies which seek to engance domestic welfare by promoting trade surplusses
Why is autarky bad?
You lose what you could have by taking advantage of trade and the principles of comparitive advantage
Two Kinds of protectionism
Tariffs: Tax on imports
Quotas: How much a product can be imported and exported (Non-tariff barrier)
Why do states errect tade barriers?
To protect new industries
Political reasons
source of revenue
retaliation
Types of trade agreemets
1)Bilateral Agreememt: reciprocal arangements to lower barriers of trade between two states
2)Free trade areas: Reciprocal arrangements to lower barriers of trade between several states
3) Cartels: An association of producers or consumers formed to manipulate the price of a good on the world market (most common OPEC)

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