Chapter 4

Question 1

When does trade occur?

Answer 1

When goods, services, or resources are exchanged

Question 2

What is a barter?

Answer 2

Trade without money

Question 3

Why do people trade voluntarily?

Answer 3

To make themselves better off

Question 4

True or False: The buyer and seller both benefit from trade?

Answer 4

True

Question 5

What are the three motivations to trade?

Answer 5

Differ in taste, differ in abilities, and better use of resources through specialization

Question 6

Why do we trade?

Answer 6

Because we like one thing more than another

Question 7

What did Adam Smith say?

Answer 7

People without education cannot produce an item, therefore that is why we trade

Question 8

What must take place for an efficient trade to happen?

Answer 8

A desire in the market

Question 9

What rises comparative advantage?

Answer 9

Differences in abilities

Question 10

What do trade offs include?

Answer 10

Putting labor into one good and taking it away from another or producing the good then trading it for something that someone else has produced

Question 11

True or False: If the external trade is lower than the internal, the trade is advantageous?

Answer 11

True

Question 12

What is trade limited by?

Answer 12

Transaction costs

Question 13

How do transaction costs arise?

Answer 13

Due to the sacrifice that must be made to search out, negotiate, and complete an exchange

Question 14

What do we only trade?

Answer 14

Goods, services, and resources

Question 15

What does less expensive resources lead to?

Answer 15

The supply of the goods that producers make rises, lowering costs and resulting in more being sold, expanding value for consumers and producers

Question 16

What are mercantilists obsessed with?

Answer 16

Balance of payments

Question 17

What are balance of payments?

Answer 17

The dollar value of exported goods minus the dollar value of imported goods

Question 18

What is a trade surplus?

Answer 18

A positive balance of payments

Question 19

What is a trade deficit?

Answer 19

A negative balance of payments

Question 20

What is the purpose of the current account?

Answer 20

To measure the value of the flow of goods and services

Question 21

True or False: The current account and the capital account must offset each other?

Answer 21

True

Question 22

What does international trade require?

Answer 22

The buying and selling of each country’s currency

Question 23

What is the exchange rate?

Answer 23

The price of one country’s currency in terms of another country’s currency

Question 24

What does the exchange rate depend on?

Answer 24

The supply and demand for the currency

Question 25

How is the demand for dollars determined?

Answer 25

By how many US goods the rest of the world wants, and whether people expect the dollar to gain or lose value in the future

Question 26

How is the supply of dollars determined?

Answer 26

By how many of the rest of the world’s goods that people holding dollars wish to have, whether people expect the dollar to gain or lose value, and the central bank

Question 27

When the dollar appreciates does it gain value?

Answer 27

Yes

Question 28

What does the appreciation of the dollar do?

Answer 28

Makes it harder to export and more profitable to import

Question 29

Do voluntary imports and exports increase the economy?

Answer 29

Yes

Question 30

What are tariffs?

Answer 30

Tax on imported goods

Question 31

What are quotas?

Answer 31

Restrictions on the quantity of imports that citizens can purchase

Question 32

What are subsidies?

Answer 32

Paying domestic firms to produce

Question 33

What are export subsidies?

Answer 33

Paying domestic firms for each unit they export

Question 34

What are domestic content restrictions?

Answer 34

Laws that say a product made in the country must be primarily made using resources from that country

Question 35

What are anti competitive manufacturing specifications?

Answer 35

Requiring that a particular imported product be manufactured with the inputs that are difficult to acquire except in the importing country

Question 36

In quotas, does the producer gain more than the consumer?

Answer 36

Yes

Question 37

What are the reasons protectionists may accept imports?

Answer 37

If the good is impossible to produce domestically in sufficient quantities, if a country never imports our goods then we do not import theirs, the exporter has wages and other regulations similar to ours, and the imported good will not greatly harm any domestic industry