Chapter 3

Question 1

Opportunity Cost

Answer 1

The opportunity of giving up the second-best choice when making a decision.

Question 2

Absolute Advantage

Answer 2

The benefit a country has in a given industry when it can produce more of a product than other nations using the same amount or resources.

Question 3

Comparative Advantage

Answer 3

The benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries.

Question 4

Balance of Trade

Answer 4

A basic measure of the difference in value between a nation’s exports and imports including both goods and services.

Question 5

Trade Surplus

Answer 5

Overage that occurs when the total value of nation’s exports is higher than the total value of its imports.

Question 6

Trade Deficit

Answer 6

Shortfall that occurs when the total value of a nation’s imports is higher than the total value of its exports.

Question 7

Exchange Rate

Answer 7

A measurement of the value of one nation’s currency relative to the currency of other nations.

Question 8

Countertrade

Answer 8

International trade that involves the barter of products for products rather than for currency.

Question 9

Foreign Outsourcing

Answer 9

(also contract manufacturing) Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production.

Question 10

Importing

Answer 10

Buying products domestically that have been produced or grown in foreign nations.

Question 11

Exporting

Answer 11

Selling products in foreign nations that have been produced or grown domestically.

Question 12

Sociocultural Differences

Answer 12

Differences among cultures in languages, attitudes and values.

Question 13

Infrastructure

Answer 13

A county’s physical facilities that support economic activity.

Question 14

Protectionism

Answer 14

National policies designed to restrict international trade, usually with the goal of protecting domestic businesses.

Question 15

Tariffs

Answer 15

Taxes levied against imports

Question 16

Quotas

Answer 16

Limitations on the amount of specific products that may be imported from certain countries during a given time period.

Question 17

Embargo

Answer 17

A complete ban on international trade of a certain item, or a total halt in trade with a particular nation.

Question 18

Free Trade

Answer 18

The unrestricted movement of goods and services across international borders.

Question 19

General Agreement on Tariffs and Trade (GATT)

Answer 19

An international trade treaty designed to encourage worldwide trade among its members.

Question 20

World Trade Organization (WTO)

Answer 20

A permanent global institution to promote international trade and to settle international trade disputes.

Question 21

North American Free Trade Agreement (NAFTA)

Answer 21

The treaty among the United States, Mexico and Canada that eliminated trade barriers and investment restrictions over a 15-year period starting in 1994.

Question 22

European Union (EU)

Answer 22

The world’s largest common market, composed of 28 European nations.