Absolute Advantage: the ability of a country to produce a good using fewer inputs than another country.


Ad Valorem Tariff: levied as a fraction of the value of imported goods

Balance of Capital Account: the amount of foreign purchases in the U.S. minus the U.S. purchases made in other countries.

Balance of Current Accounts: the flow of goods, services, income and transfer payments into and out of a country

Balance of Payments: “A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar [or other currency] difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.” (

Balance of Services: “The difference between funds received by a country when exporting services and the funds paid for importing services. The balance of services is one part of the current accounts portion of the balance of payments, the other is major part is the balance of trade.”   (

Balance of Trade: “The difference between a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.”  (

Capital Account: “A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public and private international investments flowing in and out of a country.”

Comparative Advantage: the ability of a country to produce a good at a lower opportunity cost than another country.

Current Account: “The difference between a nation’s total exports of goods, services and transfers, and its total imports of them. Current account balance calculations exclude transactions in financial.” (

Economies of Scale: “The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.

There are two types of economies of scale:

-External economies – the cost per unit depends on the size of the industry, not the firm.
-Internal economies – the cost per unit depends on size of the individual firm.”

Export Subsidies: “Government help to exporters, generally in two forms (1) Service subsidy: trade information, trade shows, feasibility studies, foreign representation, etc. (2) Cash subsidy: (a) rebate on imported raw materials and duty-free import of manufacturing equipment (called indirect cash subsidy); or (b) drawback as a percentage of the value of exports (called direct cash subsidy). Although World trade Organization (WTO, formerly GATT) recognizes that subsidies hinder fair competition and distort trade practices, it has not been able to define precisely what kind of assistance constitutes a subsidy.” (

Export Supply Curve: the difference between the quantity that foreign producers supply minus the quantity that foreign consumers demand, at each price

Free Trade: trade between countries that is not hindered government practices that discriminate against imports or exports

Gross Domestic Product (GDP):  “The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.”  (

General Agreement on Tariffs and Trade (GATT): “A treaty created following the conclusion of World War II. The General Agreement on Tariffs and Trade (GATT) was implemented to further regulate world trade to aide in the economic recovery following the war. GATT’s main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies” (

Heckscher-Ohlin Model/Theory: differences in labor, labor skills, physical capital, land or other factors of production across countries create productive differences that explain why trade occurs.

Import Demand Curve: the difference between the quantity that domestic consumers demand minus the quantity that domestic producers supply, at each price.

Import Quotas: a restriction on the quantity of a good that may be imported

Index of Openness: measures the degree of a country’s orientation to the external world. 

Isovalue: a relationship between the production of two products in which the total market value is constant.

Labor Intensive: “A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business.” (

Labor Productivity: “A measurement of economic growth of a country. Labor productivity measures the amount of goods and services produced by one hour of labor. More specifically, labor productivity measures the amount of real GDP produced by an hour of labor.”

Net Exports: The value of a country’s total exports minus the value of its total imports

Nominal value: “The stated value of an issued security. Nominal value in economics also refers to a value expressed in monetary terms for a specific year or years, without adjusting for inflation. When used in reference to securities, nominal value is also known face value or par value.”

Opportunity Cost: the amount of good or service that is sacrificed or given up in order to produce another good or service.

Production Possibility Frontier (PPF): “A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.”

 Specific Tariff: levied as a fixed charge for each unit of imported goods

Tariff: a tax levied when a good is imported.

Terms of Trade: the price of exports relative to the price of imports.

Trade Liberalization: “The removal or reduction of restrictions or barriers on the free exchange of goods between nations.” (

Trade Specialization: “A method of production where a business or area focuses on the production of a limited scope of products or services in order to gain greater degrees of productive efficiency within the entire system of businesses or areas.” (

Voluntary Export Quota: the quota is imposed by the exporting country rather than the importing country.

World Trade Organization: “The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” (