Glossary Chapter 6 ad valorem tariff a percentage based on the value of the goods imported. administrative trade policies bureaucratic rules and regulations that are specifically designed to impede free trade. advanced factor conditions enhancements made to improve the competitive advantage of the nation's industry. basic factor conditions those found naturally and without enhancements within a nation (e.g., large labour force, natural resources, surface features, geography). compound tariff a combination of both a specific and an ad valorem tax being levied. dumping the selling of goods in a host market below the cost of production. first mover advantage those first to enter the market gain a number of economic and strategic advantages over those that subsequently enter the market. free trade exists when governments make no attempt to interfere with businesses buying or selling products or services directly or indirectly in the global marketplace. Heckscher-Ohlin theory the theory name when resources (factors of production both basic and advanced) are abundant in one nation, while at the same time scarce in other competing nations, the nation with the abundance will have an international competitive advantage in those resources and the goods or services that require those resources. import quota a government restriction on the quantity of a product that will be admitted into the host country. international product-tradelife-cycle theory countries begin by exporting their product; then undertake foreign direct investment and establish international facilities, and later, enter the final stage and become an importer of the product. local content requirements implemented by nations by specifying that some portion of the product must be produced domestically. mercantilism economic philosophy strive for total economic independence from all other countries by embracing protectionist and isolationist policies. new trade theory The theory with three premises: firms can gain an advantage through specialization and by exploiting economies of scale; companies that are first into the marketplace will gain a number of advantages as well as the ability to put in place barriers to entry by competitors; and on occasion governments can play a very important role in assisting home companies to succeed internationally. offshoring giving jobs to foreigners in developing countries instead of keeping those jobs at home. Porter’s theory of competitive advantage of nations the theory where four variables impact the ability of domestic firms to utilize the nation's resources to gain international competitive advantage (factor endowments; demand conditions; related and supporting industries; and the firm’s strategy, structure, and rivalry). production possibility frontier (PPF) a curve or line depicting all maximum output possibilities of two or more goods given a set of inputs (resources, labour, capital, technology etc.). specific tariff a fixed charge levied for each unit of a good imported. subsidy the gratuitous direct or indirect payment of monies by a government to a domestic firm. tariff a tax levied on imports. theory of absolute advantage a country should export only goods and services for which it is more productive than other countries and should import only those goods and services from countries that are more productive than it is. theory of comparative advantage the theory where a nation can still profit by exporting goods, even though it is less efficient than other nations, if it held a comparative advantage in the production of the exported goods. trade deficit the condition where the value of the trade imports exceeds the value of the nation's exports. trade surplus occurs when the value of the nation's exports exceeds the value of the nation's imports. voluntary export restriction (VER) a quota that has been self-imposed by the exporting country.