International Economics

Question 1

International economics

Answer 1

Study of economic that occurs abroad

• Increase markets for sale of goods and services
• To obtain commodities not otherwise available; to obtain commodities at lower cost

Question 2

Absolute and Comparative advantage

Answer 2

Absolute advantage - ability to produce a good or provide service more efficiently (fewer input resources)

Comparative - Lower opportunity cost derived from availability of resources and technology

To maximize output, entities should specialize in products or services that take lowest opportunity cost and they should trade. Entities should specialize in area they produce at the least opportunity cost

Question 3

Principle of comparative advantage

Answer 3

Output of two or more entities greatest

Question 4

Porter’s Four Attributes

Answer 4

• Factor Endowment
• Demand Conditions
• Relating and Supporting Industries
• Firm Strategy, Structure, and Rivalry

Four Outcomes:

• Availability of resources and skills
• Information used to determine which opportunities to go into
• Goals of individuals within firms
• Pressure on firms to innovate and invest

Question 5

Balance of Payment

Answer 5

Current account - Net dollar value for amounts earned for exports, amounts spent on import, income from investments, government grants to foreign entities, and the resulting net (export or import) balance

Capital account - Net dollar value of inflows from investments and loans by foreign entities, outflows from investment and loans US entities made broad

• Reflect net exchange in foreign ownership of US assets and US ownership of foreign assets

Financial account - Net dollar amount of US owed assets located abroad and foreign owned assets in the US;

Question 6

Direct exchange rate vs indirect exchange rate

Answer 6

Direct - Domestic price of one unit of foreign currency

“Direct” = Domestic

Indirect - Foreign price of one unit of domestic currency