Chapter 4

Question 1

trade

Answer 1

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

social gain model

Answer 3

points out that walmart gains from a sale of a blue ray player, but I also gain because I don’t pay the max I’m willing to pay
Adam Smith was wrong in saying that the person that ended up with the money has gained and the person who ended up paying has lost

Question 4

incentive of trade: 3 motivation

Answer 4

people differ in trade
people differ in abilities
more highly populated market give rise to better use of resources through specialization

Question 5

trade based on taste

Answer 5

sometimes we trade because we like one thing more than another or because we dislike something less than something else

Question 6

trade based on the division of labor/ extent of the market

Answer 6

Adam smith: those ten persons therefore could make among them upwards of forty eight thousand pins in a day. each person therefore making a 10th part of forty eight thousand pins, might be considered as making 4 thousand eight hundred pins in a day. but if they had all wrought separately and independently and without any of them having been educated to this particular business, they certainly could not each of them have made twenty perhaps not one pin in a day”

Question 7

trade based on ability

Answer 7

each individual has different abilities
arn and meg can catch 1lb of fish but arn can pick 3 pints of grapes and meg 5 pints
meg would pick 4 pints of grapes and trade for 1lb of fish
meg works less to catch 1lb of fish
arn catches fish sacrificing time it would take to pick 3 pints of grapes but still gets 4 pints

Question 8

comparative advantage

Answer 8

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

Question 9

tranaction cost

Answer 9

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

Question 10

balance of trade

Answer 10

the dollar value of exporting good and services minus the dollar value of imported goods and services

Question 11

trade surplus

Answer 11

positive balance of trade

Question 12

trade deficit

Answer 12

negative balance of trade

Question 13

the current amount

Answer 13

monetary value of the flow of goods and services

Question 14

the capital amount

Answer 14

stocks and bonds

Question 15

balance of payment

Answer 15

sum of the current account and capital account – always zero