Key Terms:

Principle of comparative advantage is an economic principle suggests that each country should
do what they do best and trade with others for the other products or services.

Outsourcing is subcontracting to others who can perform an activity more cheaply.

Multinational corporation is a corporation operating in two or more countries.

Barriers to entry are obstacles that make it difficult or costly to enter a business.

Trade barriers are any government regulation that inhibits trade between nations.

Protectionism is a government's use of trade restrictions to protect specific businesses or

industries from cheaper foreign competition. Such an action gives the specific domestic
companies legal relief from the threat of external competition.

Tariffis a tax on imported goods.

Revenue tariffs are designed to generate money.

Ad Valorem (see percentage tariff).

Percentage tariff(Ad Valorem) are tariffs may be set by the percentage of the value of the item.

Set rate tariff are tariffs may be set by a set rate per item (for example, $10 or $1000 per item).

Protective tariffs increase the cost to foreigners, allowing domestic producers to compete more
favorably.

Prohibitive tariffs make the item so expensive that no one can afford it, or it would become
absurd to buy it instead of an alternative (e.g., a 200% tariff).

Nontariff barriers are measures to restrict imports without placing a tariff.

Quota is a limit on the quantity of a particular product that can enter the country.

Voluntary export restraints place a limit on the quantity of a particular product that can leave
the country.

Subsidies are governmental redistributions of taxpayer money in favor of a particular business or

industry.

Direct subsidies are large cash transfers.

Indirect subsidies make a particular industry more profitable without directly channeling money
to the business or industry.

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Tax subsidy is a transfer through a tax deduction or abatement.

Regulatory subsidies benefit one company or industry by changing the rules making it more or
less expensive for foreigners to compete.

Production subsidy is money given to prop up an important or vital industry.

Export subsidies are government transfers to an industry or company whose products the
government wants to export.

General Agreement on Tariffs and Trade (GATT) is a series of trade agreements spanning
more than 60 years that sought to reduce trade barriers (tariff and non-tariff barriers). 124
member countries ultimately signed on, but GATT was superseded by the World Trade
Organization.

World Trade Organization (WTO) is the international trade agreement body with 153 member
nations and 30 observer governments.

North American Free Trade Agreement (NAFTA) is a free trade agreement between the United
States, Canada, and Mexico.

Central America Free Trade Agreement (CAFTA-DR) is a free trade agreement between the
United States and a number of Central American countries including Costa Rica, EI Salvador,
Guatemala, Honduras, Nicaragua, and the Dominican Republic.

Association ofSoutheast Asian Nations (ASEAN) is an economic treaty between 10 Southeast

Asian Nations.

Asia-Pacific Economic Corporation (APEC) is a forum for economic growth and trade for
countries in Asia and on the Pacific Ocean that includes 21 member countries with roughly 113
of the world's population.

European Union (EU) is a European trading bloc consisting of27 European countries. The EU
is far more than a corporation or a treaty. It is a half-step toward a true confederation.

Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental

organization of oil exporting countries.

Entrepreneur is an individual who sees an opportunity and attempts to seize it. He must organize
resources to meet a need.

Entrepreneurship can be defined as marshalling resources to seize an opportunity.

Small business is an independent, privately owned company that has less than 100 employees.

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Intrepreneur is an entrepreneur that pursues new business opportunities in the context of an
existing business.

E-commerce is doing business online.

Importing is purchasing goods or services from another country to sell at home.

Exporting is producing goods or services to sell in another country.

Licensing permits another entity to manufacture and distribute your product for a fee.

Franchising is a licensing agreement that permits another person or organization to use your
organization's trademarks, brand, or business formula for a fee.

Franchisor is the parent company who agrees to license an existing business formula to others
for a fee and a percentage of future profits.

Franchisee is the new operator, pays the franchisor, the parent company, a fee. This fee is
usually a lump sum and a percentage of future profits.

Strategic alliance occurs when two or more companies work together for mutual gain.

Joint venture is a strategic alliance where the two companies are partners in the new business.

Wholly owned subsidiary is a business where the parent company owns 100% of its stock.

Expatriate is a citizen of one country living in a foreign country, often for such purposes.

Right to work states allow individuals to work without being forced to join a union

Index of Personal and Economic Freedom ranks states on public policies affecting personal,
economic, and social freedom.

Index of Economic Freedom is a measure of the degree to which countries are free.

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