Theory and Practice
Absolute advantage: the production situation where one country is more resource efficient in the production of a good than another country. It underlies a theory for why countries will engage in international trade. Trade based on absolute advantage is a situation where one country has an absolute advantage in production of one good and the other country has an absolute advantage in the production of another good. Each country specializes in the production of the good it is more efficient at producing and exports that good, while at the same time importing its requirements of the good it would produce inefficiently. Accepted retaliation: a GATT principle whereby a country accepts that if it violates its GATT commitments in a way that injures trading partners, those partners have the right to impose trade penalties on the offending country up to the value of the damage suffered without the fear of retaliation from the original offending country. In short, if injured by a GATT violation, a country can impose trade sanctions without fear of reretaliation, thus preventing trade wars. Ad valorem: a term usually applied to taxes (particularly tariffs) which are calculated as a percentage of the value of a good. Aggregate demand: the sum of the demands of all individuals participating in a market. Antidumping duties: tariffs imposed on the goods of a foreign firm deemed to be trading unfairly by selling below the full cost of production — it is dumping. Autarky: the situation where a country does not...