Chapter 4 Flashcards
Trade
occurs when goods, services, or resources are exchanged, sometimes using money as a medium of exchange.
barter
trade without money
comparative advantage
the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
Transactions costs
a cost incurred in making an economic exchange of some sort, or in other words the cost of participating in a market.
balance of trade
the dollar value of exported goods and services minus the dollar value of imported goods and services
trade surplus
the amount by which the value of a country’s exports exceeds the cost of its imports.
trade deficit
the amount by which the cost of a country’s imports exceeds the value of its exports.
The Current Account
the monetary value of the flow of goods and services.
is an important indicator about an economy’s health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.
The Capital Account
A deficit in the capital account means money is flowing out of the country, and it suggests the nation is increasing its ownership of foreign assets.
Balance of Payments
the sum of the current account and the capital account, is always zero
Exchange Rate
the value of one currency for the purpose of conversion to another.
dollar has appreciated
gained in value, compared to the peso.
protectionism
the theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports.
Tariffs
taxes on imports, sometimes more than 100% of the import’s price.
Quotas
restrictions on the quantity of imports that citizens can purchase.
Subsidies
paying domestic firms to produce. Unless foreign governments retaliate, foreign
industries can’t compete
Export Subsidies
paying domestic firms for each unit they export
Domestic content restrictions
laws that say a product made in the country must be primarily made using resources from the country
Anti-competitive manufacturing specifications
requiring that a particular imported product be
manufactured with inputs that are difficult to acquire except in the importing country.
the economic problem
allocating society’s scarce resources to their best uses.
-an economy’s finite resources are insufficient to satisfy all human wants and needs
