International Trade

Question 1

Imports and Exports

Answer 1

Imports - goods/services purchased from other countries

Exports - goods/services sold to other countries

Question 2

Globalization

Answer 2

Growing economic linkages among countries

Question 3

Forces driving globalization

Answer 3

1. Technology
2. Decline in the cost of air transport
3. Policy of reducing tariffs
4. Long-run push toward more trade by the USA

Question 4

Ricardian Model of International Trade

Answer 4

Analyzes international trade under the assumption that opportunity costs are constant

Question 5

Autarky

Answer 5

Situation in which a country cannot trade with other countries

Question 6

Specialization

Answer 6

Helps increase total world production of both goods, since each country consumes more

Question 7

Sources of comparative advantage

Answer 7

1. International differences in climate
2. Differences in technology
3. Factor endowments (Heckscher-Ohlin Model)

Question 8

Heckscher-Ohlin Model

Answer 8

Country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available

Question 9

Factor Intensity

Answer 9

Measure if which factor is used in relatively greater quantities than other

Question 10

World Price

Answer 10

A price at which good can be brought/sold abroad

Question 11

Domestic Price = World Price

Answer 11

Because of competition between importers and exporters

Question 12

World Price < Autarky Price

Answer 12

Trade leads to imports and fall in domestic price

Question 13

Overall Gains from trade

Answer 13

Because consumer gains exceed producer losses