Business Chapter 3

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Buying products from another country


selling products to another country

Free trade

the movement of goods and services among nations without political or economic barriers

Comparative advantage theory

Theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently.

Absolute advantage

The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Balance of trade

The total value of a nation’s exports compared to its imports measured over a particular period.

Trade surplus

A favorable balance of trade; occurs when the value of a country’s exports exceeds that of its imports.

Trade deficit

An unfavorable balance of trade; occurs when the value of a country’s imports exceeds that of its exports.

Balance of payments

The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.


selling products in a foreign country at lower prices than those charged in the producing country.


A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Contact manufacturing

A foreign country’s production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing.

Exchange rate

The value of one nation’s currency relative to the currencies of other countries


Lowering the value of a nation’s currency relative to other currencies.


A complex form of bartering in which several countries may be involved, each trading goods for goods or services.

Trade protectionism

The use of government regulations to limit the import of goods and services.


a tax imposed on imports

Import quota

A limit on the number of products in certain categories that a nation can import.


a complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

General Agreement on Tariffs and Trade

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

World Trade Organization

The international organization that replaces the General Agreement of Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.

Common Market

A regional group of countries that have a common external tariff, o internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. And example is the European Union.

North American Free Trade Agreement

Agreement that created a free trade area among the US, Canada, and Mexico.

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