International Economics

Comparative advantage a country is said to have a comparative

advantage in the production of a good when she can produce the good at
a lower opportunity cost than another country
Law of comparative advantage trade can benefit all countries if they
specialize in the goods in which they have a comparative advantage in the
production of, being able to produce the good at a lower opportunity cost
than another country
Free trade the exchange of goods and services between countries
without artificial restrictions, it is a policy of imposing no restrictions on
the movements of goods and services between countries
Dumping the selling of the same good to a foreign country at a lower
price than that charged to the domestic buyers and often below the
marginal cost of production
Free trade agreement an agreement whereby member countries
agree to remove tariff and non-tariff barriers among themselves but each
can retain whatever restrictions she wants for non-member countries
Trade creation occurs when consumption shifts from a high cost
producer to a low cost producer
Trade diversion occurs when consumption shifts from a lower cost
producer outside the trading bloc to a higher cost one within it