2. Economics 2

Question 1

GDP

Answer 1

Domestic and foreign

Question 2

GNP

Answer 2

Domestic and domestic in foreign countries

Question 3

Benefits of international trade

Answer 3

Lower cost to consumers of importation
Higher employment, wages, profits in exportation industries

Question 4

Cost of international trade

Answer 4

Displacement of workers
Lost profit in industries competing with imported goods

Question 5

Absolute advantage

Answer 5

Lower cost in terms of resources used

Question 6

Comparative advantage

Answer 6

Lower opportunity cost to produce

Question 7

Ricardian model

Answer 7

Labor is the only factor of production
Comparative advantage depends on relative labor productivity for different goods

Question 8

Heckscher-Ohlin model

Answer 8

Two factors of production:capital and labor
Comparative advantage depends on relative amount of each factor possessed by a country

Question 9

Trade restrictions

Answer 9

Tarrif (tax on imports)
Quota (limitations on quantity imports)
Export subsidies (payment by gov to domestic exporters)
Minimum domestic content (required proportion of product to be sources domestically)
Voluntary export restraint (agreement by a country to limit the quantity it will export to another country)

Question 10

Effects: Tarrifs & Quota

Answer 10

Voir graph 10-4

Question 11

Effects: Trade restrictions

Answer 11

Consumer: always loss
Producer: always gain
Domestic gov:
Tarrif, quota: gain
Ver: none
Export subsidy: loss
Foreign exporter:
Tarrif: loss
Quota, Ver: gains
Export subsidy: NA

Question 12

Reason for trade restrictions

Answer 12

Protecting domestic jobs
Protecting domestic producers