Econ 101: Chapter 9

Question 1

Import

Answer 1

to buy goods or services from foreign sellers.

Question 2

Export

Answer 2

to sell goods or services to foreign buyers.

Question 3

you can get a better deal by trading with foreigners because of…

Answer 3

comparative advantage.

Question 4

Geography should be…

Answer 4

irrelevant when applying the idea of assigning tasks to those with the lowest opportunity cost.

Question 5

Export goods when the…

Answer 5

opportunity cost is low (comparative advantage)

Question 6

Import goods when…

Answer 6

opportunity costs are high (everything else).

Question 7

trade costs

Answer 7

the extra costs incurred as a result of buying or selling internationally, rather than domestically.

Question 8

Sources of comparative advantage:

Answer 8

abundant inputs, specialized skills, and mass production.

Question 9

Abundant inputs:

Answer 9

do you have more of something relative to your trading partners?

Question 10

Specialized skills:

Answer 10

do you have unique skills, production methods, or expertise?

Productivity increases with experience.

Question 11

mass production:

Answer 11

economies of scale – producing more means having more bargaining power when purchasing inputs.

can have very specialized and efficient production lines.

Question 12

world supply

Answer 12

the total quantity of a good produced by all manufacturers in the world at each price.

Question 13

world demand

Answer 13

the total quantity of a good demanded across all buyers in every country.

Question 14

world price

Answer 14

the price that a good sells for in the global market.

Question 15

Canadian buyers and sellers are…

Answer 15

price takers on the world market

Question 16

domestic demand curve

Answer 16

shows the quantity of a good that all domestic consumers added together plan to buy, at each price.

Question 17

domestic supply curve

Answer 17

shows the quantity of a good that all domestic suppliers added together plan to sell, at each price.

Question 18

Imports only occur if…

Answer 18

the world price is below domestic price.

Question 19

Imports cause…

Answer 19

domestic suppliers to decrease quantity supplied, and domestic buyers to increase quantity demanded.

Question 19

For traded goods…

Answer 19

the world price = equilibrium price.

Question 20

The gap between domestic supply and domestic demand is filled by…

Answer 20

exports or imports (depends on what the world price is).

Question 21

Imports lead to…

Answer 21

lower prices.

Question 22

Imports raise…

Answer 22

total economic surplus. Consumer surplus increases, producer surplus decreases.

Question 23

Exports only occur when…

Answer 23

the world price is above the domestic price.

Question 24

Exports cause...

Answer 24

domestic suppliers to increase the quantity supplied, and domestic buyers to decrease the quantity demanded.

Question 25

Exports lead to...

Answer 25

higher prices.

Question 26

Exports raise...

Answer 26

total economic surplus. Consumer surplus decreases, and producer surplus increases.

Question 27

Import competing businesses

Answer 27

produce goods and services which are also imported into the country.

Question 28

Export industries

Answer 28

produce goods and services which are exported from the country

Question 29

import dependent businesses

Answer 29

rely on imports of cheap raw materials

Question 30

5 arguments for limiting free trade:

Answer 30

1. National security 2. Protect infant industries 3. Anti-dumping laws 4. Skirting regulations 5. Job losses

Question 31

National security

Answer 31

we should produce important resources ourselves, in case relations with other countries sour.

Question 32

Protect infant industries

Answer 32

we should shield infant industries from foreign competition, to help them grow.

Question 33

anti-dumping laws.

Answer 33

prevent unfair competition. sometimes foreign companies dump very cheap goods into Canada, to drive Canadian competitors out of business.

Question 34

skirting regulations

Answer 34

trade should not be a way for companies to skirt regulations like minimum wage, safety standards, and environmental standards.

Question 35

job losses

Answer 35

reducing foreign trade can help preserve job losses in import-competing sectors. May have side effect of impacting import-dependent and export businesses.

Question 36

tariffs

Answer 36

taxes on imported goods; increases trade costs.

Question 37

tariffs result in..

Answer 37

higher quantity supplied by domestic suppliers, lower quantity demanded by domestic buyers. Also generates government tax revenue.

Question 38

Tariffs reduce...

Answer 38

total economic surplus.

Question 39

Red tape

Answer 39

includes pre-arrival approvals, port handling, customs, more customs, etc. Adds to trade costs.

Question 40

red tape has...

Answer 40

the same effect as a tariff, but it doesn't raise government revenue.

Question 41

import quota

Answer 41

a limit on the quantity of a good that can be imported.

Question 42

import quotas only raise gov't revenue if...

Answer 42

it auctions off the scarce import licenses.

Question 43

Exchange rate manipulation

Answer 43

changes the price of your goods in foreign markets.

Question 44

bilateral deals

Answer 44

two way

Question 45

World trade organization (WTO)

Answer 45

a forum for global agreements to reduce trade barriers.

Question 46

Globalization

Answer 46

the increasing economic, political, and cultural integration of different countries.

Question 47

labour is...

Answer 47

embodied in the goods that are traded between countries.

Question 48

Deadweight loss occurs...

Answer 48

when there are import tariffs and import quotas. Also when a free trade nation reverts back to no-trade.

Question 49

productivity

Answer 49

determines average wages.