Chapter 4 - Value Creation Through Trade

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

Trade Based on Tastes

Answer 3

We tend to trade because we like one thing more than another or dislike something less than something else

Question 4

Trade Based on the Division of Labor/Extent of Market

Answer 4

Elaborate

Question 5

Trade Based on Abilities

Answer 5

The different abilities on individuals that they offer to market labor

Question 6

Comparative Advantage

Answer 6

An individual has a comparative advantage at producing a good if he or she has a lower opportunity cost of producing the good, in terms of other goods sacrificed. Differences in abilities of individuals or of other resources give rise to comparative advantage

Question 7

Transactions Cost

Answer 7

Arise due to sacrifice made to search out, negotiate, and compete an exchange

Question 8

Balance of Trade

Answer 8

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

Question 9

Trade Surplus

Answer 9

Positive balance of trade

Question 10

Trade Deficit

Answer 10

Negative balance of trade

Question 11

Bastiat - Trade

Answer 11

Add examples

Question 12

Balance of Current Account

Answer 12

Monetary value of the flow of goods and services

Exports - Imports = Bal of Current Acct

Question 13

Balance of Capital Account

Answer 13

Stocks and bonds

Exports - Imports = Bal of Capital Acct

Question 14

Balance of Payments

Answer 14

Capital Accounts + Current Accounts = ALWAYS = 0

Question 15

Exchange Rates

Answer 15

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

Question 16

Dollar Has Appreciated

Answer 16

Gained in value compared to another currency

Appreciation of the dollar makes it less profitable to export and more profitable to import

A depreciation of the dollar has the opposite effect

Question 17

Exporting

Answer 17

Like weak $ so people can buy more of your product

Question 18

Producers

Answer 18

Prefer weak $ so more can be exported

Question 19

Demand for the Dollar Determined By:

Answer 19

How many US goods, services, and financial instruments the rest of the world wants and if people expect $ to appreciate or depreciate in value in the future (in terms of other currencies)

Question 20

Supply of Dollars Determined By:

Answer 20

How many of the rest of the world’s goods, services, and financial instruments that people holding $ wish to have. If people expect $ to appreciate or depreciate in value and central bank - US Federal Reserve Bank creating or destroying money

Question 21

Bastiat - Chapter 7: Restraint of Trade

Answer 21

Add more about trade

Question 22

Protectionists

Answer 22

Modern day mercantilists are sometime called this

Question 23

The state restrains trade through a few means:

Answer 23

• 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. Putting restrictions on product that is being imported

Question 24

Immigration and Trade

Answer 24

International persons doing domestic trade