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 it has an absolute advantage.

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 in competing with foreign firms.