Chapter 10: International Trade

Question 1

imports (M)

Answer 1

goods, services, or resources produced abroad and sold domestically

Question 2

exports (X)

Answer 2

goods, services, or resources produced domestically and sold abroad

Question 3

quota rent

Answer 3

the income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price
=size of quota x (quota price - world price)

Question 4

3 benefits to international trade

Answer 4

1. access to lower-priced goods
2. access to wider variety of goods
3. access to scarce resources

Question 5

comparative advantage

Answer 5

ability to produce a good or service at a lower relative opportunity cost than that of another producer

Question 6

opportunity cost

Answer 6

the value of the next-best forgone alternative; value of opp given up for another

Question 7

autarky

Answer 7

a situation in which a country is closed to any international trade

Question 8

specialization

Answer 8

the practice of using available resources to produce a single good or service rather than multiple goods and services

Question 9

absolute advantage

Answer 9

ability to produce more output given similar resources than another producer

Question 10

production possibilities frontier (PPF)

Answer 10

graph showing the possible combinations of 2 different goods or services that can be produced with fixed resources and technology; attainable and efficient

Question 11

terms of trade

Answer 11

the price of one good, service, or resource in terms of another

Question 12

gains from trade

Answer 12

the benefit or wealth that accrues to a buyer or seller as a result of trading one good, service, or resource for another

Question 13

small-country model

Answer 13

a model of international trade in which the production or consumption of a good, service, or resource in the domestic country is small relative to global markets

Question 14

welfare effects

Answer 14

the effects that change in market conditions, usually price, has on the welfare or economic wellbeing of market participants; generally found by comparing changes in consume and producer surplus

Question 15

consumer surplus

Answer 15

difference between max price consumers willing to pay and the price they actually pay

Question 16

producer surplus

Answer 16

difference between price producers receive and the minimum price they are willing to accept

Question 17

economic surplus

Answer 17

= consumer surplus + producer surplus

Question 18

deadweight loss

Answer 18

value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

Question 19

free trade

Answer 19

trade between nations that is free of barriers such as regulations, tariffs, or quotas

Question 20

quota

Answer 20

a numerical limit on the amount of a good that can be imported

Question 21

tarrif

Answer 21

a tax or fee that must be paid on goods imported from other countries

Question 22

barrier to trade

Answer 22

any policy designed to reduce the competitiveness of foreign producers that wish to sell their goods or services in the domestic market

Question 23

TARIFF REVENUE (TR)

Answer 23

TR = Tariff x Qi (quantity imported); revenue collected from tariffs

Question 24

quotas

Answer 24

numerical limit on the amount of a good that can be imported; rightward shift of domestic supply curve