Classic trade theories
According to Adam Smith’s Labor Theory of Value, these specific units determine the price of goods and identify which country has an absolute advantage.
Labor hours.
the Heckscher-Ohlin model says trade is driven by differences in these national "endowments" rather than technology.
Factors of production (Labor, Capital, and Land).
This specific type of tariff is calculated as a fixed percentage of the total value of the imported good.
Ad valorem tariff.
This group is the primary "loser" of trade protection, as they must pay higher prices for goods.
Consumers
This term describes the price of one currency expressed in terms of another currency.
Exchange Rate.
In the presentation’s example, if Foreign needs 2 hours for Food and Home needs 2.5 hours, which country has the absolute advantage in Food?
Foreign. (Because 2 < 2.5).
According to the H-O Theorem, a "land-abundant" country is most likely to export this specific category of goods.
Land-intensive goods (or Agriculture).
In the "Small Country Model," this is the primary assumption regarding the country's ability to influence the world price (Pw)
The country is a price-taker (its imports are too small to change world prices).
This specific account records a nation’s net income from abroad, including trade in goods/services and primary income.
The Current Account.
This institution is responsible for intervening in the FX market to manage a country's currency value.
The Central Bank
This revolutionary 1817 concept explains why a country should trade even if it is less productive in every single industry than its neighbor.
Comparative Advantage
The H-O model shifts the focus of trade from labor productivity to these, which include land, labor, and capital.
Factor Endowments
These government payments to domestic producers are designed to lower production costs and encourage selling abroad.
Export Subsidies
This "Identity" states that the sum of the Current, Capital, and Financial accounts must theoretically equal this number.
Zero.
In this exchange rate regime, the value of the currency is allowed to fluctuate according to market supply and demand.
Floating (or Flexible) Exchange Rate.
This term describes what a country must sacrifice to produce one good instead of another, forming the basis of David Ricardo’s theory.
Opportunity cost.
This theorem suggests that free trade leads to the leveling of wages and returns to capital across different countries.
Labor Intensity
Governments often use tariffs to shield these "young" domestic industries that are not yet ready for global competition.
Infant Industries
Profits, dividends, and interest earned on foreign assets are recorded under this specific sub-category of the Current Account.
Primary Income.
The "Impossible Trinity" states a country cannot simultaneously have a fixed rate, an independent monetary policy, and this third feature.
Free Capital Movement (Capital Mobility).
Adam Smith’s theory states a country should export goods where it has lower labor requirements than any other country, known as this.
Absolute Advantage
The H-O model suggests that trading goods is a functional "substitute" for this specific physical movement across borders.
Factor mobility (Migration of labor or flows of capital).
Why are Voluntary Export Restraints (VERs) considered the "most costly" form of protection for an importing country?
Because the Quota Rents (revenue) go to foreign exporters instead of the domestic government.
This hypothesis suggests that a government's budget deficit often moves in the same direction as its current account deficit.
The Twin Deficits Hypothesis
In this type of intervention, a central bank offsets the impact of currency sales on the domestic money supply using open market operations.
Sterilized Intervention.