Chapter 4

Question 1

Trade

Answer 1

Occurs when goods, services, or resources are exchanged, sometimes using money as a medium of exchange.

Question 2

Barter

Answer 2

Trade without money

Question 3

Comparative Advantage

Answer 3

Producing a good if he/she has a lower opportunity cost of producing goods, in terms of other goods sacrificed.

Question 4

Differences in abilities of individuals or of other resources give…

Answer 4

rise to comparative advantage.

Question 5

Three motivations of trade

Answer 5

1. Differences in tastes
2. Differences in abilities
3. Expansion of market extent

Question 6

Transactions Costs

Answer 6

Rise due to sacrifice ade to search out, negotiate, and complete exchange.

Question 7

Balance of Trade

Answer 7

Dollar value of exported goods and services - money value of imported goods and services

Question 8

Trade Surplus

Answer 8

Positive balance of trade

Question 9

Trade Deficit

Answer 9

Negative balance of trade

Question 10

The Current Account

Answer 10

Monetary value of flow of goods and services.

Question 11

Balance of Payments

Answer 11

Current account + Capital account always equals 0

Question 12

Exchange Rate

Answer 12

Price of one country’s currency in terms of another country’s currency.

Question 13

Exchange ragte relies on…

Answer 13

supply and demand of each currency.

Question 14

Dollar appreciation

Answer 14

Gained value compared to other currencies.

Question 15

Dollar depreciation

Answer 15

Declined in value compared to other currencies.

Question 16

Protectionists

Answer 16

Modern day mercantilists

Question 17

Tariffs

Answer 17

Taxes on imports

Question 18

Quotas

Answer 18

Restrictions on import quantity that citizens can purchase

Question 19

Subsidies

Answer 19

Paying domestic firms to produce

Question 20

Export Subsidies

Answer 20

Paying domestic firms for each unit exported

Question 21

Domestic Content Restrictions

Answer 21

Laws saying a product made in a country must be primarily made of resources from the country.

Question 22

Anti-Competitive Manufacturing Specifications

Answer 22

Requiring that a particular imported product be manufactured with inputs that are difficult to acquire

Question 23

Methods of Trade Restrictions

Answer 23

1. Tariffs
2. Quotas
3. Subsidies
4. Export Subsidies
5. Domestic Content Restriciton
6. Anti-Competitive Manufacturing Specifications

Question 24

Economic Problem

Answer 24

Allocating scarce resources to their best use.

Question 25

Steps of Comparative Advantage

Answer 25

1. Reduce
2. Least cost of producing one good
3. Propose trade… Least cost to make extra unit
4. See how much they demand in return.