chapter 1 & 2

Question 1

The Mercantilists

Answer 1

An economic theory that uses economic nationalism
primarily from Europe in 1500-1800s

Question 2

Trade surplus

Answer 2

Argue that to maintain economic growth, a country should maintain a favorable trade balance.

Question 3

From a macroeconomics perspective, what happens as equilibrium prices in lots of individual markets rise?

Answer 3

Inflation

Question 4

efficiency

Answer 4

the only way to make more of one good is to produce less of another

Question 5

inefficiency

Answer 5

it is possible to make more of one good without having to give up producing any of the other good

Question 6

pure capitalism (market economy) is defined by 2 characteristics:

Answer 6

a) private ownership of resources
–b) no central government authority oversees production and consumption in capitalism, there is a reliance on markets to allocate economic resources

Question 7

contrast with pure command economy (centrally planned), which is defined by 2 characteristics:

Answer 7

–a) all resources are owned by the government
–b) central authorities coordinate (dictate) all economic decisions

Question 8

human capital

Answer 8

additional knowledge and skills gained through education, training, and experience

Question 9

(physical) capital

Answer 9

output such as machinery, equipment, and buildings that is used to produce other goods and services

Question 10

open economy (macro)

Answer 10

Y = C + I + G + (X - M)

Question 11

closed economy

Answer 11

no X or M…so, just Y = C + I + G…

Question 12

Scientists of the late 1700s and early 1800s begin theoretically exploring international trade topics

Answer 12

David Hume, Adam Smith, David Ricardo, and John Stuart Mill

Question 13

what happens to demand for various goods and services?

Answer 13

demand increases

Question 14

what happens to equilibrium prices in each of these markets?

Answer 14

Pe increases

Question 15

if exports fall at the same time that imports rise, what happens to a trade balance?

Answer 15

The trade surplus shrinks and eventually may be eliminated

Question 16

PPF

Answer 16

Production possibilities frontier

Question 17

PPC

Answer 17

Production possibilities curve

Question 18

opportunity cost per unit

Answer 18

calculation showing trade-offs between what is lost and what is gained as move along a PPF

Question 19

Points outside a PPF are?

Answer 19

Unattainable

Question 20

points inside the PPF are?

Answer 20

attainable but are inefficient

Question 21

points on the PPF itself are?

Answer 21

both attainable and efficient

Question 22

o.c. per unit will always be calculated as

Answer 22

loss divided by gain

Question 23

When resources decrease, the PPF?

Answer 23

Shifts left

Question 24

When resources increase the PPF?

Answer 24

Shifts right

Question 25

Why sheep in Scotland

Answer 25

since cooler temperature in Scotland means sheep grow thicker wool coats there…

Question 26

Why wine in France?

Answer 26

Get more wine from same acreage of grapes in France, since warmer temps mean bigger grapes

Question 27

domestic exports

Answer 27

money is received by the domestic seller, which means there is an inflow of money into the domestic economy

Question 28

domestic imports

Answer 28

money is paid by the domestic consumer, which means there is an outflow of money from the domestic economy

Question 29

positive trade balance

Answer 29

there is an overall net inflow of money into the domestic economy

Question 30

MRT

Answer 30

shows the amount of one product a nation must sacrifice to get one additional unit of the other product

Question 31

Terms-of-Trade Limits

Answer 31

the region of mutually beneficial trade is bounded by the cost ratios of the two countries

Question 32

Autarky

Answer 32

The absence of international trade (closed off)

Question 33

Absolute advantage

Answer 33

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.

Question 34

Comparative advantage

Answer 34

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.

Question 35

Adam Smith

Answer 35

absolute advantage, used real world observations to say that it is better to get certain things from other countries

Question 36

David Ricardo

Answer 36

comparative advantage, lawyer can type faster that secretary but it is more economical to have the secretary so she can do lawyer tasks

Question 37

theory of reciprocal demand

Answer 37

a larger country has less to gain from a smaller country in trade

Question 38

John Stuart Mill

Answer 38

theory of reciprocal demand

Question 39

Price-specie-flow doctrine

Answer 39

David Hume, trade imbalance automatically corrects itself, if country has trade surplus then the domestic cost rises, exports are more expensive, and encourages imports