Econ-Chapter 4 Flashcards
Trade
Occurs when goods, services, or resources are exchanged , sometimes using money as a medium of exchange.
Barter
Trade without money
When people trade voluntarily, they do so , so that they will be
Better off
Incentives to Trade
People differ in tastes, people differ in abilities, and more highly populated markets give rise to better use of resources though specialization.
Comparative Advantage
An individual has this at producing one good if he or she has a lower opportunity cost of producing the good, in terms of other goods sacrificed.
How is trade advantageous ?
When the external cost of trading for a good is lower than the internal cost of producing the good.
What is trade limited by
Transaction costs
Transaction Costs
Arise due to the sacrifice that must be made to search out, negotiate, and complete an exchange.
Less expensive resources means that the supply of the goods that producers make rises which ..
lowers the costs and results in more being sold, expanding the value for consumers and producers.
Mercantilism
Aimed at keeping as much money in the country as possible-not letting it escape. obsessed with abalone of trade
Balance of Trade
The dollar value of exported goods and services minus the dollar value of imported goods and services.
Trade Surplus
Positive balance of trade
Trade deficit
A negative balance of trade
The current Account
The monetary value of the flow of goods and services.
The capital account
Those dollars either purchase US goods and services -resulting in an eventual balance of the current account- or they purchase financial instruments, the stocks and bonds of US companies and/or governments, which adds to the monetary value of this.
Balance of payments
The sum of the current account and the capital account, is always zero.
Exchange rate
The price of one country’s currency in terms of another country’s currency.
The exchange rate depends on..
The supply and demand for each currency
The demand for dollars is determined by
How many US goods, services, and financial instruments the rest of the world wants
Wether people expect the dollar to gain or lose value in the future- in terms of other currencies.
Supply of dollars is determined by
- How many of the rest of the world’s good, services, and financial instruments that people holding dollars wish to have
- Wether people expect the dollar to gain or lose value-in terms of other currencies
- The central bank-the US Federal Reserve Bank (the fed) creating or destroying money
Dollar has appreciated
Gained in value, compared to the peso
An appreciation of the dollar makes it less profitable to export and
More profitable to import
Modern day mercantilists are sometimes called
Protectionists
Tariffs
Taxes on imports, sometimes more than 100% of the imports 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
economic problem
allocating society’s scare resources to their best uses
Protectionists may accept imports under some limited conditions
- the good is impossible to produce domestically in sufficient quantities
- exporting is good
- the exporter has wages and other regulations similar to ours
- imported good will not greatly harm any domestic industry
the worst foreign source to import from
produce a good that we produce domestically
never import from us
have zero wages
clearly harm a domestic industry
