Chapter 4

Question 1

Trade

Answer 1

occurs when goods, services, or resources are exchanged

Question 2

Barter

Answer 2

Trade without money

Question 3

comparative advantage

Answer 3

producing a good if he or she has a lower opportunity cost of producing the good, in terms of other goods sacrificed

Question 4

Transactions costs

Answer 4

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

Question 5

balance of trade

Answer 5

the dollar value of exported goods and services minus the dollar value of imported goods and services

Question 6

trade surplus

Answer 6

A positive balance of trade

Question 7

trade deficit

Answer 7

negative balance of trade

Question 8

the current account

Answer 8

the monetary value of the flow of goods and services

Question 9

the capital account

Answer 9

the stocks and bonds of US companies and/or governments

Question 10

balance of payments

Answer 10

the sum of the current account and the capital account, is always zero

Question 11

exchange rate

Answer 11

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

Question 12

dollar has appreciated

Answer 12

gained in value, compared to the peso.

Question 13

protectionists

Answer 13

Modern day mercantilists

Question 14

Tariffs

Answer 14

taxes on imports, sometimes more than 100% of the import’s price.

Question 15

• Quotas

Answer 15

restrictions on the quantity of imports that citizens can purchase.

Question 16

• Subsidies

Answer 16

paying domestic firms to produce. Unless foreign governments retaliate, foreign industries can’t compete

Question 17

• Export subsidies

Answer 17

paying domestic firms for each unit they export

Question 18

• Domestic content restrictions

Answer 18

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

Question 19

• Anti-competitive manufacturing specifications

Answer 19

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

Question 20

the economic problem

Answer 20

allocating society’s scarce resources to their best uses.