Question

define and briefly explain the use/importance of 6 of the following terms

Comparative Advantage

Factor Price Equalization Theorem

Deadweight Loss

Absolute Advantage

Tariff

Factor Movements

Trade Surplus

Factor Endowments

Balance of Trade

Autarky

Answer 1

1> Comparative Advantage :- Comparative advantage means that relative advantage. It is calculated by calculating the opportunity cost. The entity which has a lesser opportunity cost has a comparative advantage.

2> Absolute Advantage :- Absolute advantage is a tool to compare entities how much each entity can produce if they use all the available resources. Thus, if an entity can produce more, it has an absolute advantage.

3> Tariff :- Tariff is the amount of money charged by government(national or state) before it can enter into that boundary and given a permit to sell within that boundary. Suppose Germany is selling 1 ton of steel to Kenya for $400 and the government imposes a tariff of $10, then the price will go up to $410.

4>  Trade Surplus:- Trade Surplus is the difference between export and import if it is positive. Trade surplus only occurs if exports is more than imports.