Chapter 19 Flashcards
An economy that engages in international trade is called an [. ]; one that does not is called a [. ]
open economy, closed economy
One region is said to have an [. ] over another region in the production of good X when an equal quantity of resources can produce more X in the first region than in the second.
absolute advantage
The [. ] is the dollar cost of the labour, capital, and other resources required to produce the goods.
absolute cost
A country is said to have a [. ] in the production of good X if the cost of producing X in terms of forgone output of other goods is lower in that country than in another. Thus, the pattern of comparative advantage is based on [. ] rather than absolute costs.
comparative advantage, opportunity costs
Whenever [. ] differ between countries, specialization can increase the world’s production of both products.
opportunity costs
[. ] of production against the pattern of [. ] advantage leads to a decline in total world output.
Specialization, comparative
The slope of the [. ] indicates the opportunity costs. The existence of different opportunity costs across countries implies [. ] that can lead to gains from trade.
production possibilities boundary, comparative advantages
A diagrammatic illustration of the gains from trade appears where the production possibilities boundary is [. ] (which means that the opportunity cost for each good is higher when more of that good is being produced).
concave
International trade leads to an expansion of the set of goods that can be consumed in the economy in two ways:
(1) By allowing the bundle of goods consumed to differ from the bundle produced, (2) By permitting a profitable change in the pattern of production
The [. ] of producing X is the output of other products that must be sacrificed in order to increase the output of X by [. ]
opportunity cost,one unit.
Country A has a comparative advantage over Country B in producing a product when its [. ] of production is lower. This implies, however, that Country A has a [. ] disadvantage in some other product(s).
opportunity cost, comparative
When opportunity costs for all products are the same in all countries, there is [. ] and there is no possibility of gains from specialization and trade.
no comparative advantage
When opportunity costs differ in any two countries and both countries are producing both products, it is always possible to [. ] of both products by a [. ] of resources within each country.
increase total production, suitable reallocation
[. ] fall as the scale of output increases
production costs
To know the pattern of comparative advantage, we must calculate the [. ] of production.
opportunity costs
different countries specialize in different versions of similar products, and then trade with one another. Such trade is referred to as [. ]trade and reflects the prevalence of scale economies and [. ] in many industries.
intra-industry, product differentiation
In industries with differentiated products and significant scale economies, small countries that do not trade will have [. ] and therefore high costs. With international trade, however, small countries can produce for the [. ] and thus produce at lower costs. International trade therefore allows small countries to reap the benefits of scale economies.
low levels of output, large global market
four Sources of Comparative Advantage:
(1)Different Factor Endowments, (2)Different Climates, (3)Human Capital, (4)Acquired Comparative Advantage
The [. ] states that when a product is traded internationally, the prices in various countries (net of any specific taxes or tariffs) will differ by no more than the cost of transporting the product between countries
law of one price
Exports occur whenever there is [. ] at the world price
excess supply domestically
If the world price is higher than the no-trade domestic price , there will be an [. ] of supply over Canadian demand.
excess
Imports occur whenever there is [. ] at the world price.
excess demand domestically
The case in support of a specific government intervention requires that 3 things:
(1) there is scope for governments to improve on the results achieved by the free market, (2) the costs of the intervention be less than the value of the improvement to be achieved, and (3) governments will actually be able to carry out the required interventionist policies
A rise in the price of imported goods, with the price of exports unchanged, indicates a [. ] it will now take more exports to buy the same quantity of imports.
fall in the terms of trade
