Principles of Economics chapter 5

Question 1

What are imports and exports

Answer 1

Goods and services purchased from other countries are imports; goods and services sold to other countries are exports.

Question 2

What is globalization

Answer 2

Globalization is the phenomenon of growing economic linkages among countries.

Question 3

What is hyperglobalization

Answer 3

Hyperglobalization is the phenomenon of extremely high levels of international trade.

Question 4

What does the Ricardian model of international trade analyze

Answer 4

The Ricardian model of international trade analyzes international trade under the assumption that opportunity costs are constant.

Question 5

What is autarky

Answer 5

Autarky is a situation in which a country does not trade with other countries.

Question 6

What is factory intensity

Answer 6

The factor intensity of a good is a measure of which factor is used in relatively greater quantities than other factors in production.

Question 7

What is the Heckscher-Olin model

Answer 7

According to the Heckscher–Ohlin model, a country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that
country.

Question 8

What does the domestic demand curve show

Answer 8

The domestic demand curve shows how the quantity of a good demanded by domestic consumers depends on the price of that good.

Question 9

What does the domestic supply curve show

Answer 9

The domestic supply curve shows how the quantity of a good supplied by domestic producers depends on the price of that good.

Question 10

What is the world price

Answer 10

The world price of a good is the price at which that good can be bought or sold abroad.

Question 11

What are exporting industries

Answer 11

Exporting industries produce goods and services that are sold abroad.

Question 12

What are impport-competing industries

Answer 12

Import-competing industries produce goods and services that are also imported.

Question 13

When does an economy have free trade

Answer 13

An economy has free trade when the government does not attempt either to reduce or to increase the levels of exports and imports that occur naturally as a result of supply and demand.

Question 14

What is trade protection/protection

Answer 14

Policies that limit imports are known as trade protection or simply as protection.

Question 15

What is a tariff

Answer 15

A tariff is a tax levied on imports.

Question 16

What is an import quota

Answer 16

An import quota is a legal limit on the quantity of a good that can be imported.

Question 17

What are international trade agreements

Answer 17

International trade agreements are treaties in which a country promises to engage in less trade protection against the exports of other countries in return for a promise by
other countries to do the same for its own exports.

Question 18

What is a trade war

Answer 18

In a trade war, countries deliberately try to impose pain on their trading partners, as a way to extract policy concessions.

Question 19

What is the North American Free Trade Agreement, or NAFTA, NAFTA-USMCA

Answer 19

The North American Free Trade Agreement, or NAFTA, is a trade agreement among the United States, Canada, and Mexico. The current version of the agreement is NAFTA-
USMCA.

Question 20

What is the European Union/EU

Answer 20

The European Union, or EU, is a customs union among 27 European nations.

Question 21

What is the World Trade Organization/ WTO

Answer 21

The World Trade Organization, or WTO, oversees international trade agreements and rules on disputes between countries over those agreements.

Question 22

When does offshore outsourcing take place

Answer 22

Offshore outsourcing takes place when businesses hire people in another country to perform various tasks.

Question 23

What is a consumer´s willingness to pay

Answer 23

A consumer’s willingness to pay for a good is the maximum price at which they would buy that good.

Question 24

What is the individual consumer surplus

Answer 24

Individual consumer surplus is the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer’s willingness to pay and the
price paid.

Question 25

What is the total consumer surplus

Answer 25

Total consumer surplus is the sum of the individual consumer surpluses of all the buyers of a good in a market.

Question 26

What is meant by the term consumer surplus

Answer 26

The term consumer surplus is often used to refer both to individual and to total
consumer surplus.

Question 27

What is the individual producer surplus

Answer 27

Individual producer surplus is the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller’s cost.

Question 28

What is the total producer surplus

Answer 28

Total producer surplus is the sum of the individual producer surpluses of all the sellers of a good in a market.

Question 29

What is meant by the term producer surplus

Answer 29

Economists use the term producer surplus to refer both to individual and to total producer surplus.

Question 30

What is the total surplus

Answer 30

The total surplus generated in a market is the total net gain to consumers and producers from trading in the market. It is the sum of the producer and the consumer surplus.