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  • private costs

    costs borne solely by the individuals who incur them. Also called internal costs.

    social costs

    the full costs borne by society whenever a resource use occurs.. Social costs can be measured by adding external costs to private, or internal, costs.

    externality

    a consequence of a diversion of a private cost (or benefit) from a social cost (or benefit). A situation in which the costs (or benefits) of an action are not fully borne (or gained) by the decision makers engaged in an activity that uses scarce resources.

    optimal quantity of pollution

    the level of pollution for which the marginal benefit of one additional unit of pollution abatement just equals the marginal cost of that additional unit of pollution abatement.

    transaction costs

    all costs associated with making, reaching, and enforcing agreements.

    private property rights

    exclusive rights of ownership that allow the use, transfer, and exchange of property.

    common property

    property that is owned by everyone and therefore by no one. Air and water are examples of common property resources.

    comparative advantage

    the ability to produce a good or service at a lower opportunity cost than other producers.

    infant industry argument

    the contention that tariffs should be imposed to protect from import competition an industry that is trying to get started. Presumably, after the industry becomes technologically efficient, the tariff can be lifted.

    dumping

    selling a good or a service abroad below the price charged in the home market or at a price below its cost of production.

    quota system

    a government-imposed restriction on the quantity of a specific good that another country is allowed to sell in the united states. in other words, quotas are restrictions on imports. These restrictions are usually applied to one or several specific countries.

    voluntary restraint agreement (VRA)

    an official agreement with another country that "voluntarily" restricts the quantity of its exports to the united states.

    voluntary import expansion (VIE)

    An official agreement with another country in which it agrees to import more from the united states.

    general agreement on tariffs and trade (GATT)

    An international agreement established in 1947 to further world trade by reducing barriers and tariffs. The GATT was replaced by the world trade organization in 1995.

    world trade organization (WTO)

    the successor organization to the GATT that handles trade disputes among its member nations.

    regional trade bloc

    a group of nations that grants members special trade privileges.

    trade diversion

    shifting existing international trade from countries outside a regional trade bloc to nations within the bloc.

    trade deflection

    moving partially assembled products into a member nation of a regional trade bloc, completing assembly, and then exporting them to other nations within the bloc, so as to benefit from preferences granted by the trade bloc.

    rules of origin

    regulations that nations in regional trade blocs establish to delineate product categories eligible for trading preferences.

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