Chapter 4: Value Creation Through Trade

Question 1

Trade

Answer 1

occurs when goods, services, or resources are exchanged, sometimes using money as a medium of exchange

Question 2

Barter

Answer 2

Trade without money

Question 3

Comparative Advantage

Answer 3

at producing a good if he/she has a lower opportunity cost of producing the good, in terms of other goods sacrificed

Question 4

Transactions Cost

Answer 4

arise due to the sacrifice that must be made to search out, negotiate, and complete an exchange.

Question 5

Balance of Payments

Answer 5

the dollar value of exported goods and services minus the dollar value of imported goods and services

Question 6

Trade Surplus

Answer 6

A positive balance of payments

Question 7

Trade Deficit

Answer 7

negative balance of payments

Question 8

The Current Account

Answer 8

which measures the monetary value of the flow of goods and services

Question 9

The Exchange Rate

Answer 9

The price of one country’s currency in terms of another country’s currency

Question 10

Dollar Has Appreciated

Answer 10

The price of one country’s currency in terms of another country’s currency

Question 11

Protectionist

Answer 11

Modern day mercantilists

Question 12

Tariffs

Answer 12

taxes on imports, sometimes more than 100% of the import’s price

Question 13

Quotas

Answer 13

restrictions on the quantity of imports that citizens can purchase

Question 14

Subsidies

Answer 14

paying domestic firms to produce. Unless foreign governments retaliate, foreign industries can’t compete

Question 15

Export Subsidies

Answer 15

paying domestic firms for each unit they export

Question 16

Domestic Content Restrictions

Answer 16

laws that say a product made in the country must be primarily made using resources from the country

Question 17

Anti-competitive manufacturing specifications

Answer 17

requiring that a particular imported product be manufactured with inputs that are difficult to acquire except in the importing country

Question 18

The Economic Problem

Answer 18

of allocating society’s scarce resources to their best uses.