Less developed countries
(LDCs) have low per capita
incomes.
The opportunity cost of a
good is the quantity of other
goods sacrificed to make
another unit of that good.
The law of comparative
advantage states that
countries specialize in
producing and exporting the
goods that they produce at a
lower relative cost than other
countries.
Absolute advantage means a
country is the lowest cost
producer of that good.
Comparative advantage
means the country makes the
good relatively more cheaply
than it makes other goods,
whether or not its has an
absolute advantage. The law of
comparative advantage says
countries specialize in
producing the goods they make
relatively cheaply.
Intra-industry trade is two-way
trade in goods made within the
same industry.
Trade policy affects
international trade through
taxes or subsidies, or by direct
restrictions on imports and
exports.
An import tariff is a tax on
imports.
When imports affect the world
price, the optimal tariff
reduces imports to the level at
which social marginal cost
equals social marginal benefit.
The principle of targeting says
that the most efficient way to
attain a given objective is to use
a policy influencing that activity
directly.
Dumping occurs when foreign
producers sell at prices below
their marginal production cost,
either by making losses or with
the assistance of government
subsidies.
Quotas are restrictions on the
maximum quantity of imports.
Non-tariff barriers are
administrative regulations that
discriminate against foreign
goods.
Export subsidies are
government assistance to
domestic firms that compete in
foreign markets.
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